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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Definitions:

Negative Option Rule

The Negative Option Rule is a regulation by the Federal Trade Commission that requires sellers to provide clear disclosure of and obtain consent for charges where the customer's silence or failure to reject goods or services is interpreted as acceptance.

Advertised Merchandise

Items or products that are promoted or announced to the public through various media platforms.

Cooling-Off Rule

A regulation that gives consumers a set period of time to cancel a contract or purchase without penalty, intended to protect consumers from high-pressure sales tactics.

Punitive Damages

Monetary compensation awarded to an injured party that goes beyond what is necessary to compensate the individual and is intended to punish the wrongdoer.