A taxpayer sells a patent on a new algorithm for a gain. Which taxpayer will be allowed capital gain treatment for the sale? Assume that the patent had not been placed in service as of the acquisition date.
A) a sole proprietor who purchased the patent from the inventor
B) a corporation who purchased the patent from the inventor
C) Both of the above.
D) None of the above.
A) a sole proprietor who purchased the patent from the inventor
Capital gain treatment is only allowed to a "holder" under Sec. 1235. A holder is an individual who acquires the patent rights from the creator before the patent is placed in service or used. Corporations are not included in the definition of holder.
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