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HUDSON v. COMMISSIONER
United States Tax Court (1953) | 20 T.C. 734
TL;DR: Taxpayers bought a court judgment at a discount and later collected more than their cost from the debtor. The court held the profit was ordinary income, not capital gain, because collecting a debt is not a "sale or exchange."
Legal Significance: This case establishes that the collection or settlement of a debt, even a purchased one, does not constitute a "sale or exchange" required for capital gains treatment. The gain is ordinary income because the asset is extinguished, not transferred.