You’re wrong in many different ways:

- Long term vs short term

- different rates

- state capital gains taxes

In this case, with the receiver being a CA resident, he pays almost certainly more than 50% in taxes on this bounty.

I don't think big bounties are capital gains.

Even long term capital gain for “the investment class” is more like 20%. This is not even a capital gain - this is straight income at 35+

LTCG tax for the rich is more like 23.8%, when you include the net investment income tax of 3.8% (which I had two financial advisors miss).

Plus state income taxes.

https://www.schwab.com/taxes/net-investment-income-taxes

If this is a reward or payment for services, it is taxed as regular income, not as an investment. The FICA tax (SS/Medicare) will either be payed by the payer (shown on W-2) or the payee as self-employment tax when filing a Schedule C.

Capital gains for higher earners are taxed at 20%, and also subject to the Net Investment Income Tax at 3.8%.