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made joint assignments to MPC of the rights relating to various
inventions (i.e., for which patent applications were pending).
Petitioners timely filed their joint Federal income tax
returns relating to 2000, 2001, and 2002. On December 2, 2004,
respondent issued petitioners a notice of deficiency in which he
determined that income reported by petitioners as long-term
capital gain (i.e., in the amounts of $247,977, $224,962, and
$339,560 relating to 2000, 2001, and 2002, respectively) was
ordinary income. Respondent further determined that petitioners
were liable for a section 6662 penalty relating to 2000, 2001,
and 2002.
On March 1, 2005, petitioners, while residing in Purchase,
New York, filed their petition with the Court.
OPINION
Petitioners contend that, pursuant to section 1235, income
reported by petitioners in the amounts of $247,977, $224,962,
and $339,560 relating to 2000, 2001, and 2002, respectively,
qualifies for long-term capital gain treatment. Section 1235(a)
provides that a transfer of property consisting of all
substantial rights to a patent is considered a sale or exchange
of a capital asset held for more than 1 year (i.e., a long-term
capital asset), regardless of how long the transferor actually
held the rights to the patent. Long-term capital gain
treatment, however, is not available pursuant to section 1235 if
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