republic-os/legal/us/code/title-26/chapter-1/section-1235.md

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LegalText	26 U.S.C. § 1235	Sale or exchange of patents	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	1235	26 U.S.C. § 1235	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s1235	data/legal/raw/us/code/title-26/usc26.xml	ff69bf0865e15d1165ae715678447432097ff36c527edc0c49becc9896b7ab15	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	5f6ab762a4489e143e54c877a00c0f1048cbdfc6fdfd07422c5139c1e8be92c9	2026-07-04	official	legal us-code

26 U.S.C. § 1235 - Sale or exchange of patents

Text

(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 (c)).

(c) 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.

(d) 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, § 54(a), Sept. 2, 1958, 72 Stat. 1644; Pub. L. 94–455, title XIV, § 1402(b)(1)(V), (2), Oct. 4, 1976, 90 Stat. 1732; Pub. L. 98–369, div. A, title I, § 174(b)(5)(C), title X, § 1001(b)(19), (e), July 18, 1984, 98 Stat. 707, 1012; Pub. L. 105–206, title V, § 5001(a)(5), title VI, § 6005(d)(4), July 22, 1998, 112 Stat. 788, 805; Pub. L. 113–295, div. A, title II, § 221(a)(82), Dec. 19, 2014, 128 Stat. 4049.)

Notes

Editorial Notes

Amendments2014—Subsec. (b)(2)(B). Pub. L. 113–295, § 221(a)(82)(B), substituted “subsection (c)” for “subsection (d)”. Subsecs. (c) to (e). Pub. L. 113–295, § 221(a)(82)(A), redesignated subsecs. (d) and (e) as (c) and (d), respectively, and struck out former subsec. (c). Prior to amendment, text of subsec. (c) read as follows: “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.” 1998—Subsec. (a). Pub. L. 105–206, § 6005(d)(4), substituted “18 months” for “1 year” in introductory provisions. Pub. L. 105–206, § 5001(a)(5), substituted “1 year” for “18 months” in introductory provisions. 1984—Subsec. (a). Pub. L. 98–369, § 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, § 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, § 1402(b)(2), provided that “9 months” would be changed to “1 year”. Pub. L. 94–455, § 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.”

Statutory Notes and Related Subsidiaries

Effective Date of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 1998 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentPub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977. Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.

Effective Date of 1958 AmendmentPub. L. 85–866, title I, § 54(b), Sept. 2, 1958, 72 Stat. 1644, 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.”