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Mr. Hiram is a computer engineer and, while unemployed, invents a switching device for computer...

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Accounting

Mr. 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. He assigns 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 these.

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