§1235 — Sale or exchange of patents

-32- [*32] However, section 1235(a) does not apply if the transferee is a related person.

The question we must decide is whetherpetitioner transferred "all substantial rights" to the relevant technology, such that the royalties he received are eligible for capital gain treatment under section 1235.¹ Finding as we do that petitioner retained valuable rights in the technologythat was the subject ofthe transfer, we sustain respondent's determination that section 1235 does not apply and that the royalties constituted ordinary income.

1235(a); see also Juda v. Commissioner, 90 T.C. 1263, 1281 (1988), aff'd, 877 F.2d 1075 (1st Cir. 1989). For purposes ofsection 1235, the term "all substantial rights"29 means "all rights * * * which are ofvalue at the time the rights * * * are transferred." Sec. 1.1235-2(b)(1), Income Tax Regs.3° The retention ofthe right to terminate the transfer at will is the retention ofa substantial right under section 1235.3' Sec. 1.1235-2(b)(4), Income Tax Regs. 28Generally, an assignment is a transfer o

After concessions, the issues for decision are: (1) whether royalties petitioner James Cooper received during 2006, 2007, and 2008 qualified for capital gain treatment pursuant to section 1235; (2) whether petitioners may deduct professional fees paid during 2006 that were attributable to expenses charged by Holmes Development for work performed with respect to U.S.

(2) Whether the Leas may report the payments as capital gain income under section 1235.1 Respondent's position on this issue 1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

(2) Whether the Leas may report the payments as capital gain income under section 1235.1 Respondent's position on this issue 1Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

For purposes - 26 - of section 1235, the term "all substantial rights" means "all rights * * * which are of value at the time the rights * * * are transferred ." Sec .

OPINION Petitioners contend that, pursuant to section 1235, income reported by petitioners in the amounts of $247,977, $224,962, and $339,560 relating to 2000, 2001, and 2002, respectively, qualifies .

; Schank v. Commissioner, T.C. Memo. 2015-235, at *16. II. Classification ofIncome We must decide whether any ofthe payments under the 2006 addendum were in exchange for Pipeline IP or were owed to Mr. Meggs under his broker agreement. We start with section 1235. A. Section 1235 Section 1235(a) provides that the "transfer * * * ofproperty consisting ofall substantial rights to a patent * * * by any holder shall be considered the sale or exchange ofa capital asset held for more than 1 year". This

payments he received from -Cardinal. Health constitute long-t;erm capital gain, not" ordinary income Generally, income a patent holder receives from the transfer of substantiallys all rights to a patent .shall be treated as long- term capital gain.« Sec. 1235 (a) . The parties agree that petitioner transferred all of, his rights in the needleless syringe patents to Cardinal Health and that any income -petitioner received for the transfer of the patents constitutes -long-term capital gain. The pa

For purposes - 26 - of section 1235, the term "all substantial rights" means "all rights * * * which are of value at the time the rights * * * are transferred ." Sec .

For purposes - 26 - of section 1235, the term "all substantial rights" means "all rights * * * which are of value at the time the rights * * * are transferred ." Sec .

For purposes - 26 - of section 1235, the term "all substantial rights" means "all rights * * * which are of value at the time the rights * * * are transferred ." Sec .