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P got by devise a ten-story office building from his father in 1928. At that time, the premises were leased to a firm that had sublet the main floor to Irving Trust. In 1927, Irving Trust and P's father executed a contract in which P's father agreed to lease the main floor and basement to Irving for 15 years with annual rent of $25,000 with that term to commence at the expiration of the head lease. In 1933, Irving found it unprofitable to stay at that location. The lease was canceled by mutual agreement in consideration of payment of $140,000. P did not include this amount in his gross income for 1933. He reported a loss of $21,494.75 based on the theory that the cancellation was $21,494.75 less than the difference between the present value of the unmatured rental payments and the fair value of the main floor and basement for the unexpired term of the lease. The IRS disallowed the loss and taxed the $140,000 as ordinary income. P contends that the amount received for cancellation of the lease was capital rather than ordinary income and even if he is wrong he still sustained a loss under ordinary income.

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