Jean Reinhard Essay

1668 Words May 17th, 2015 7 Pages
Issues

1-. What are the tax consequences if Jean & Joseph create the corporation by transferring the Tricometer intellectual property and more than $10,000 of cash so that corporation can acquire the patent, trade name and trademark?
2-. What are the tax consequences if Jean & Joseph jointly acquire the patent, trade name and trademark; create the corporation with more than $10,000 cash; and license the patent, trade name and trademark to the corporation in return for royalties?
3-. Add another step to#2, i.e. giving the intangibles to children under 16 or over 15?
Facts

Jean Reinhard and Joseph Glid are presently paid engineers employed by General Electric Company. They are both subject to the highest marginal income tax rate. They
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2-. If Jean and Joseph decide to acquire the patent, trade name and trademark most of the expenses would not be able to be deducted by the corporation. Therefore, they will have to reflect these expenses in their individual returns. Most intellectual property is amortizable over a 15-year period under I.R.C. § 197. This section includes: (1) goodwill and going concern value, if purchased in an acquisition; (2) the value of the workforce of a company, if purchased, (3) the value of any patents, copyrights and formulas, if purchased; (4) governmental licenses and permits, both purchased and self created; (5) covenants not to compete; (6) franchises, trademarks and trade names, both purchased and self-created; and (7) most computer software development costs. However, self-created copyrights and patents are not under the 15-year rule, and must be capitalized under I.R.C. § 263A.
According to the Internal Revenue Code Section 1253; which in its content explains the process of the transfers of franchises, trademarks, and trade names; displays: A transfer of a franchise, trademark, or trade name shall not be treated as a sale or exchange of a capital asset if the transferor retains any significant power, right, or continuing interest with respect to the subject matter of the

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