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:

Acid-Catalyzed Halogenation

A chemical reaction where a halogen is introduced into an organic molecule with the aid of an acid catalyst.

Major Organic Product

The main product formed in greater abundance during an organic reaction, compared to other possible products.

HIV-1

The most prevalent and pathogenic type of the human immunodeficiency viruses that causes acquired immune deficiency syndrome (AIDS).

Hydrolysis Product

A compound resulting from the chemical breakdown of a substance by water.