Cowden v. Commissioner 289 F.2d 20 (5th Cir. 1961) Cowden transferred some oil and gas leases to Stanolind. In return Staolind gave Cowden $10k immediately and a contract to give him $250k in January of the next year, and $250k the January after that. Cowden then signed over the contracts to a bank for a little less than face value. When he filed his taxes, Cowden claimed the money he got from the bank as a capital gain. The IRS disagreed. Cowden argued that the contract was a capital asset, and that by selling it he had made a capital gain. The IRS argued that the payments were ordinary income, since they really just represented the money that Cowden was due, he just got it a little faster by selling the contracts to the bank. The Tax Court found that the payments were ordinary income. The Tax Court found that the contracts were readily and immediately convertible to cash, were the equivalent of cash, and had a fair market value equal to their face value. The Appellate Court vacated and remanded. The Appellate Court found that if a contract or other negotiable instrument is a cash equivalent, then it is fully taxable as ordinary income in the year it was received. The Court found that there are a number of factors that courts should look at to determine if something is a cash equivalent. These include: Whether there is an unconditional promise to pay, Whether the promisor is solvent, Whether the contract is assignable to a third party, Whether the contract is subject to a set-off Whether the contract is readily marketable, and The amount of risk involved. The Court remanded to the Trial Court to determine whether Cowden's contract was a cash equivalent based on the factors.