Harold Is a Mechanical Engineer And,while Unemployed,invents a Switching Device

question 5

Multiple Choice

Harold is a mechanical engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Harold has a zero tax basis for the patent.In consideration of $300,000 plus a $1 royalty per device sold,Harold assigns the patent to a computer manufacturing company.Harold assigned all substantial rights in the patent.Which of the following is correct?

• A)Harold automatically has long-term capital gain from the lump sum payment,but not from the royalty payments.
• B)Harold automatically has long-term capital gain from the royalty payments,but not from the lump sum payment.
• C)Harold automatically has long-term capital gain from both the lump sum payment and the royalty payments.
• D)Harold 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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