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[concerned001]

I've been looking forward to this forum being back on line so I could search for anything having to do with IRS Section code 1235.
Using search terms code /  section and combining it with 1235, nothing.

January 18th, 2012 Mitt Romney was and perhaps still is being criticized for his only paying 15% on his capital gains income.  I got to thinking, I have something that might be considered capital gains and its not interest, dividend or sale of my home.  I recently sold some patents for which I was mistakenly showing as ordinary income.  Big mistake.  I am in process of refiling some prior years taxes.

It appears unless I missed other comments having to do with IRS Sec. 1235 there are none concerning 1235 on this forum.  Very strange unless its something every inventor already knows and I did not. 

Do you know or care?  You should. 

I filed amended returns using schedule D for 2008 -2009-2010 and electronically filed 2011.  There should be answers to all years by June.

   Below is IRS Section 1235 for those of you who don't believe in sharing more than you need to on sale of your patent(s).  Meaning patent sale capital gains income goes on Schedule D, not C, something in your favor affects your self employment tax or Social security payments and IRA contributions might have to be reversed.  Bottom line income will be taxed like Mitt Romney's as capital gains not ordinary income.

26 USC § 1235 - Sale or exchange of patents

   (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 (d)).
(c) Effective date
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.
(d) 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) andsection 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.
(e) Cross reference
For special rule relating to nonresident aliens, see section 871 (a).

[concerned001]

Its now getting close to mid April, I'm glad forum is back on line however back in February it seemed like a good idea to take advantage of tax code 1235 sending misc 1099 income to schedule D by filling 1040x for 2008-2009-2010.  I did receive a refund from IRS and state for 2010 however IRS reports that refund to Social security.
Not good.
Lower taxable income means lower taxes paid and not paying those taxes into your social security account means you get less of a benefit payment if and when you retire assuming there will be any money that our government will have to pay you.
I'm thinking to amend my 2010 return to way it was before it was amended and return refund when billed by IRS for what they sent me as a refund.

And as for capital gains benefits of section code 1235, not results I expected.

 

[concerned001]

For what it is worth it is now getting close to mid May.  I send a letter to IRS requesting they stop processing 2008 1040X.  About a week ago I received letter from IRS saying they are honoring my request as per my notice.  Meaning, refund I was looking forward to in February has expired because of 3 year rule on amended returns.
I received a refund for 2009 however amount was for less than it was suppose to be.  I called IRS they want a tax preparer to point out error and they will increase refund.
I'm thinking to wait a few months to see what happens with SS payments after refund from 2010 and partial from 2009.
Bottom line is one has to make a decision to go Schedule D at 15% and thereby reduce SS payments or not.  There are consequences.