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income for capital gain treatment pursuant to section 1235. We
reject petitioners’ contentions because there is insufficient
credible evidence to establish the existence of a forbearance
agreement.
Petitioners further contend that if capital gain treatment
is not available pursuant to section 1235, then the payments are
entitled to such treatment pursuant to sections 1221 and 1222.
Section 1.1221-1(c)(1), Income Tax Regs., provides that a patent
may qualify as a capital asset. In order to qualify for long-
term capital gain treatment, however, a taxpayer must hold his
capital asset for the requisite period prior to a sale or
exchange. Sec. 1222(3). At no time during the existence of the
partnership did Mr. Garfield hold a capital asset. Mr. Garfield
and Mr. McSherry did make joint transfers of patent rights to
MPC between 1978 and 1985, but Mr. Garfield did not hold the
patent rights for the requisite period to qualify for long-term
capital gain treatment. Accordingly, we sustain respondent’s
determination.2
Section 6662(a) imposes a penalty equal to 20 percent of
the amount of any underpayment attributable to a substantial
2 Pursuant to sec. 7491(a), petitioners have the burden of
proof unless they introduce credible evidence relating to the
issue that would shift the burden to respondent. Rule 142(a).
Our conclusions, however, are based on a preponderance of the
evidence, and thus the allocation of the burden of proof is
immaterial. See Martin Ice Cream Co. v. Commissioner, 110 T.C.
189, 210 n.16 (1998).
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