Hiram Is a Computer Engineer And, While Unemployed, Invents a Switching

question 70

Multiple Choice

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks.He patents the device but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company.He assigns all substantial rights in the patent.Which of the following is correct?

• A)Hiram automatically has long-term capital gain from the lump-sum payment, but not from the royalty payments.
• B)Hiram automatically has long-term capital gain from the royalty payments but not from the lump-sum payment.
• C)Hiram automatically has long-term capital gain from both the lump-sum payment and the royalty payments.
• D)Hiram does not have automatic long-term capital gain from either the lump-sum payment or the royalty payments.
• E)None of these.

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Definitions:

Accounts

Accounts generally refer to the records of financial transactions and positions related to assets, liabilities, equity, revenues, and expenses.

Balances

The amounts remaining in various accounts, such as bank accounts or ledger accounts, at a certain point in time.

December 31

December 31 typically refers to the last day of the year in the Gregorian calendar, often associated with year-end financial statements and tax considerations.

Balance Sheet

A financial report detailing a company's assets, liabilities, and owners' equity at a given moment, offering an overview of its financial health.