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such a transfer is made to a related person as defined in
section 267(b). See sec. 1235(d). For purposes of section
1235, a corporation and an individual owning more than 25
percent of such corporation are related persons. Sec.
267(b)(2).
The patent rights to the expansible fastener were
transferred to the partnership by Mr. McSherry on July 10, 1969,
the same date that he filed an application with the U.S. Patent
Office. On that date, Mr. Garfield was an equity partner in the
partnership but did not hold any patent rights associated with
the expansible fastener. Mr. Garfield transferred all of his
patent rights to MPC after October 10, 1970. On that date, and
thereafter, Mr. Garfield had a 36-percent interest in MPC.
Because Mr. Garfield owned more than 25 percent of the stock of
MPC, he and MPC were related persons. Secs. 267(b)(2),
1235(d)(1). Thus, pursuant to section 1235, royalty payments
from MPC to Mr. Garfield do not qualify for long-term capital
gain treatment. Petitioners contend that Mr. Garfield and Mr.
McSherry signed a forbearance agreement in 1969 that transferred
to the partnership all substantial rights to any patents; that
this transfer qualifies for long-term capital gain treatment
pursuant to section 1235(a); and that upon formation of MPC in
1970, the terms of the purported forbearance agreement carried
over to the shareholders of MPC, thereby qualifying the reported
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