Internal Revenue Code · 26 U.S.C.

§ 1235. Sale or exchange of patents

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 1235

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status: In force
Enacted: September 2, 1958 by Pub. L. 85–866
Last amended: December 19, 2014 by Pub. L. 113–295
Amendments: 4 dated changes in the source credit
Length: 4 subsections · 383 words · about 2 min to read
Defines: 1 term
Cross-references: cites 3; cited by 3 Code sections and 6 other regulations
Regulations: 2 issued under this section

¶(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 (c)).

¶(c) 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) and section 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.

¶(d) Cross reference

For special rule relating to nonresident aliens, see section 871(a).

(Aug. 16, 1954, ch. 736, 68A Stat. 329; Pub. L. 85–866, title I, § 54(a), Sept. 2, 1958, 72 Stat. 1644; Pub. L. 94–455, title XIV, § 1402(b)(1)(V), (2), Oct. 4, 1976, 90 Stat. 1732; Pub. L. 98–369, div. A, title I, § 174(b)(5)(C), title X, § 1001(b)(19), (e), July 18, 1984, 98 Stat. 707, 1012; Pub. L. 105–206, title V, § 5001(a)(5), title VI, § 6005(d)(4), July 22, 1998, 112 Stat. 788, 805; Pub. L. 113–295, div. A, title II, § 221(a)(82), Dec. 19, 2014, 128 Stat. 4049.)

Terms defined here

Where the text says “the term … means”. Select a term to jump to its definition.

holder § 1235(b)

Regulations under this section

Treasury regulations (26 CFR) issued under § 1235

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 3 other sections

Cited by 3 Code sections

Cited in 6 regulations not issued under it

Amendment history

From the source credit and the official notes, newest first.

December 19, 2014Amended by Pub. L. 113–295Parts changed in 2014: (b)(2)(B) (c)
July 22, 1998Amended by Pub. L. 105–206Parts changed in 1998: (a)
July 18, 1984Amended by Pub. L. 98–369Parts changed in 1984: (a) (d)
October 4, 1976Amended by Pub. L. 94–455Parts changed in 1976: (a)
September 2, 1958Enacted by Pub. L. 85–866Parts changed in 1958: (d)

Where it sits in the Code

Nearby sections

Official notes

Show the Law Revision Counsel's notes (amendments, effective dates)

Editorial Notes

Amendments

2014—Subsec. (b)(2)(B). Pub. L. 113–295, § 221(a)(82)(B), substituted “subsection (c)” for “subsection (d)”.

Subsecs. (c) to (e). Pub. L. 113–295, § 221(a)(82)(A), redesignated subsecs. (d) and (e) as (c) and (d), respectively, and struck out former subsec. (c). Prior to amendment, text of subsec. (c) read as follows: “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.”

1998—Subsec. (a). Pub. L. 105–206, § 6005(d)(4), substituted “18 months” for “1 year” in introductory provisions.

Pub. L. 105–206, § 5001(a)(5), substituted “1 year” for “18 months” in introductory provisions.

1984—Subsec. (a). Pub. L. 98–369, § 1001(b)(19), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.

Subsec. (d). Pub. L. 98–369, § 174(b)(5)(C), substituted “section 267(b) or persons described in section 707(b)” for “section 267(b)” and “section 267(b) and (c) and section 707(b)” for “section 267(b) and (c)” in introductory provisions, and substituted “section 267(b) or 707(b)” for “section 267(b)” in par. (1).

1976—Subsec. (a). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.

Pub. L. 94–455, § 1402(b)(1)(V), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

1958—Subsec. (d). Pub. L. 85–866 substituted provisions set out as subsec. (d) for provisions reading “Subsection (a) shall not apply to any sale or exchange between an individual and any other related person (as defined in section 267(b)), except brothers and sisters, whether by the whole or half blood.”

Effective Date of 2014 Amendment

Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 1998 Amendment

Amendment by section 5001 of Pub. L. 105–206 effective Jan. 1, 1998, see section 5001(b)(2) of Pub. L. 105–206, set out as a note under section 1 of this title.

Amendment by section 6000(d)(4) of Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

Effective Date of 1984 Amendment

Amendment by section 174(b)(5)(C) of Pub. L. 98–369 applicable to transactions after Dec. 31, 1983, in taxable years ending after that date, see section 174(c)(2)(A) of Pub. L. 98–369, set out as a note under section 267 of this title.

Amendment by section 1001(b)(19) of Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title.

Effective Date of 1976 Amendment

Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.

Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.

Effective Date of 1958 Amendment

Pub. L. 85–866, title I, § 54(b), Sept. 2, 1958, 72 Stat. 1644, provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to taxable years ending after the date of the enactment of this Act [Sept. 2, 1958], but only with respect to transfers after such date.”