Hiram Is a Computer Engineer And,while Unemployed,invents a Switching Device

question 52

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 these.

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