Cooper v. Commissioner, No. 15-70863 (9th Cir. 2017)Annotate this Case
If the patent holder effectively controls the corporation such that he or she did not transfer all substantial rights to the patents, then the tax treatment allowed by 26 U.S.C. 1235 does not apply. The Ninth Circuit affirmed the Tax Court's decision on a petition for redetermination of federal income tax deficiencies in which taxpayers sought capital gains treatment of patent-generated royalties pursuant to 26 U.S.C. 1235(a). In this case, taxpayers did not transfer all substantial rights to the patents. The panel agreed with the Tax Court that taxpayers failed to meet their burden of showing that they actually relied in good faith on an adviser's judgment in order to avoid accuracy-related penalties.