Document Type



Fruit-Tree and the Ordinary Income Base, 1 University of Bridgeport Law Review 1 (1980)


The distinction between capital gain and ordinary income is
one of the great complicating features of the federal income tax. In
broad terms, it can be said that capital gains are gains that result
from sales of investment property-typically, securities and real
estate-and that ordinary income consists chiefly of wages and
salaries, business profits, and dividends, interest and rents. But
while the main categories are thus familiar, the application of the
capital-ordinary distinction in less conventional cases is often problematic,
and borderline definitional issues, though inevitable, are
generally agreed to be too numerous for comfort.' The fault, at the
first level, lies with the statute itself. Although Code § 1221 makes
some effort to state what qualifies as a "capital asset," the classification
scheme is incomplete and in the end relies too heavily on ambiguous
terms like "property" and "business." At another level,
this failing probably reflects a fundamental uncertainty on the part
of Congress itself about what it really meant to achieve by exempting2
a major fraction of long-term investment gains from the
ordinary tax base.

Date of Authorship for this Version



ordinary income base, tax, capital income base