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

question 76

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 ????????.
• E) None of the above.

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Definitions:

Disaffirm Agreements

The legal action of renouncing or rejecting a contract or agreement, especially by minors.

Restatement (Second)

A collection of model legal principles designed to clarify, modernize, and otherwise improve American common law, particularly in contracts and torts.

Intoxication

A state of being under the influence of drugs or alcohol, affecting cognitive and physical functions.

Legal Age

The age at which an individual is recognized by law as being capable of entering into a legally binding contract, among other adult responsibilities and rights.