US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 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 (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. 73668A Stat. 329Pub. L. 85–866, title I, § 54(a)72 Stat. 1644Pub. L. 94–455, title XIV, § 1402(b)(1)(V)90 Stat. 1732Pub. L. 98–369, div. A, title I, § 174(b)(5)(C)98 Stat. 707Pub. L. 105–206, title V, § 5001(a)(5)112 Stat. 788Pub. L. 113–295, div. A, title II, § 221(a)(82)128 Stat. 4049(, ; , , ; , (2), , ; , title X, § 1001(b)(19), (e), , , 1012; , title VI, § 6005(d)(4), , , 805; , , .)

Editorial Notes

Amendments

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

Pub. L. 113–295, § 221(a)(82)(A)Subsecs. (c) to (e). , 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.”

Pub. L. 105–206, § 6005(d)(4)1998—Subsec. (a). , 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.

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

Pub. L. 98–369, § 174(b)(5)(C)Subsec. (d). , 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).

Pub. L. 94–455, § 1402(b)(2)1976—Subsec. (a). , 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.

Pub. L. 85–8661958—Subsec. (d). 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.”

Statutory Notes and Related Subsidiaries

Effective Date of 2014 Amendment

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

Effective Date of 1998 Amendment

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

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

Effective Date of 1984 Amendment

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

section 1001(b)(19) of Pub. L. 98–369section 1001(e) of Pub. L. 98–369section 166 of this titleAmendment by applicable to property acquired after , and before , see , set out as a note under .

Effective Date of 1976 Amendment

Pub. L. 94–455, title XIV, § 1402(b)(1)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)90 Stat. 1732, , , provided that the amendment made by that section is effective with respect to taxable years beginning after .

Effective Date of 1958 Amendment

Pub. L. 85–866, title I, § 54(b)72 Stat. 1644

“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 [], but only with respect to transfers after such date.”
, , , provided that: