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

question 63

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. Hiram assigned 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 the above.

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Definitions:

Numerical Coefficient

A number that multiplies a variable in an algebraic expression, representing the variable's rate of change.

Algebraic Expression

A mathematical phrase that can include numbers, variables, and operation symbols but does not contain an equality sign.

Simplify

To make something easier to understand or do by reducing its complexity.

Collect Like Terms

The process of combining terms in an algebraic expression that have the same variables raised to the same power.