
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1235]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1235. Sale or exchange of patents


(a) General

    A transfer (other than by gift, inheritance, or devise) of property 
consisting of all substantial rights to a patent, or an undivided 
interest therein which includes a part of all such rights, by any holder 
shall be considered the sale or exchange of a capital asset held for 
more than 1 year, regardless of whether or not payments in consideration 
of such transfer are--
        (1) payable periodically over a period generally coterminous 
    with the transferee's use of the patent, or
        (2) contingent on the productivity, use, or disposition of the 
    property transferred.

(b) ``Holder'' defined

    For purposes of this section, the term ``holder'' means--
        (1) any individual whose efforts created such property, or
        (2) any other individual who has acquired his interest in such 
    property in exchange for consideration in money or money's worth 
    paid to such creator prior to actual reduction to practice of the 
    invention covered by the patent, if such individual is neither--
            (A) the employer of such creator, nor
            (B) related to such creator (within the meaning of 
        subsection (d)).

(c) Effective date

    This section shall be applicable with regard to any amounts 
received, or payments made, pursuant to a transfer described in 
subsection (a) in any taxable year to which this subtitle applies, 
regardless of the taxable year in which such transfer occurred.

(d) Related persons

    Subsection (a) shall not apply to any transfer, directly or 
indirectly, between persons specified within any one of the paragraphs 
of section 267(b) or persons described in section 707(b); except that, 
in applying section 267(b) and (c) and section 707(b) for purposes of 
this section--
        (1) the phrase ``25 percent or more'' shall be substituted for 
    the phrase ``more than 50 percent'' each place it appears in section 
    267(b) or 707(b), and
        (2) paragraph (4) of section 267(c) shall be treated as 
    providing that the family of an individual shall include only his 
    spouse, ancestors, and lineal descendants.

(e) Cross reference

            For special rule relating to nonresident aliens, see section 
        871(a).

(Aug. 16, 1954, ch. 736, 68A Stat. 329; Pub. L. 85-866, title I, 
Sec. 54(a), Sept. 2, 1958, 72 Stat. 1644; Pub. L. 94-455, title XIV, 
Sec. 1402(b)(1)(V), (2), Oct. 4, 1976, 90 Stat. 1732; Pub. L. 98-369, 
div. A, title I, Sec. 174(b)(5)(C), title X, Sec. 1001(b)(19), (e), July 
18, 1984, 98 Stat. 707, 1012; Pub. L. 105-206, title V, Sec. 5001(a)(5), 
title VI, Sec. 6005(d)(4), July 22, 1998, 112 Stat. 788, 805.)


                               Amendments

    1998--Subsec. (a). Pub. L. 105-206, Sec. 6005(d)(4), substituted 
``18 months'' for ``1 year'' in introductory provisions.
    Pub. L. 105-206, Sec. 5001(a)(5), substituted ``1 year'' for ``18 
months'' in introductory provisions.
    1984--Subsec. (a). Pub. L. 98-369, Sec. 1001(b)(19), (e), 
substituted ``6 months'' for ``1 year'', applicable to property acquired 
after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 
Amendment note below.
    Subsec. (d). Pub. L. 98-369, Sec. 174(b)(5)(C), substituted 
``section 267(b) or persons described in section 707(b)'' for ``section 
267(b)'' and ``section 267(b) and (c) and section 707(b)'' for ``section 
267(b) and (c)'' in introductory provisions, and substituted ``section 
267(b) or 707(b)'' for ``section 267(b)'' in par. (1).
    1976--Subsec. (a). Pub. L. 94-455, Sec. 1402(b)(2), provided that 
``9 months'' would be changed to ``1 year''.
    Pub. L. 94-455, Sec. 1402(b)(1)(V), provided that ``6 months'' would 
be changed to ``9 months'' for taxable years beginning in 1977.
    1958--Subsec. (d). Pub. L. 85-866 substituted provisions set out as 
subsec. (d) for provisions reading ``Subsection (a) shall not apply to 
any sale or exchange between an individual and any other related person 
(as defined in section 267(b)), except brothers and sisters, whether by 
the whole or half blood.''


                    Effective Date of 1998 Amendment

    Amendment by section 5001 of Pub. L. 105-206 effective Jan. 1, 1998, 
see section 5001(b)(2) of Pub. L. 105-206, set out as a note under 
section 1 of this title.
    Amendment by section 6000(d)(4) of Pub. L. 105-206 effective, except 
as otherwise provided, as if included in the provisions of the Taxpayer 
Relief Act of 1997, Pub. L. 105-34, to which such amendment relates, see 
section 6024 of Pub. L. 105-206, set out as a note under section 1 of 
this title.


                    Effective Date of 1984 Amendment

    Amendment by section 174(b)(5)(C) of Pub. L. 98-369 applicable to 
transactions after Dec. 31, 1983, in taxable years ending after that 
date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a note 
under section 267 of this title.
    Amendment by section 1001(b)(19) of Pub. L. 98-369 applicable to 
property acquired after June 22, 1984, and before Jan. 1, 1988, see 
section 1001(e) of Pub. L. 98-369, set out as a note under section 166 
of this title.


                    Effective Date of 1976 Amendment

    Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning in 1977.
    Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1977.


                    Effective Date of 1958 Amendment

    Section 54(b) of Pub. L. 85-866 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply with respect to 
taxable years ending after the date of the enactment of this Act [Sept. 
2, 1958], but only with respect to transfers after such date.''

                  Section Referred to in Other Sections

    This section is referred to in sections 483, 871, 1274, 1441 of this 
title.
