P. G. Lake, Inc. (Lake) (plaintiff), an oil and gas production company, sold certain oil interests for a lump sum of $600,000. Lake retained title to the property that generated the oil. The purchaser of the oil interests was entitled to receive the remaining payments on certain leases, which would amount to $600,000 over a three-year period, plus 3 percent interest on the unpaid lease amount. On its federal tax return, Lake reported the proceeds from selling these oil interests as a capital gain from the sale of long-term assets. The federal tax commissioner (commissioner) (defendant) determined a deficiency in Lake’s taxes, finding that the sales proceeds constituted ordinary income. Lake petitioned the United States Tax Court for a redetermination. The tax court ruled for Lake, and the commissioner appealed. The court of appeals affirmed the tax court’s decision. The United States Supreme Court granted certiorari.