Rev. Rul. 60-226

Rev. Rul. 60-226

1960-1 C.B. 26
Story posted in Revenue Rulings on 23 July 1999
audience: PGDC Network | last updated: 15 June 2011
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CONSIDERATION RECEIVED FOR GRANT OF EXCLUSIVE RIGHT TO EXPLOIT COPYRIGHTED WORK CONSIDERED SALE OF PROPERTY

Reference:

Sec. 61
Sec. 1221

IRS Headnote:

The consideration received by a proprietor of a copyright for a grant transferring the exclusive right to exploit the copyrighted work in a medium of publication throughout the life of the copyright shall be treated as proceeds from a sale of property, regardless of whether the consideration received is measured by a percentage of the receipts from the sale, performance, exhibition, or publication of the copyrighted work, or is measured by the number of copies sold, performances given, or exhibitions made of the copyrighted work, or whether such receipts are payable periodically over a period generally coterminous with the grantee's use of the copyrighted work.

Effect on Other Rulings:

Revenue Ruling 54-409, C.B. 1954-2, 174, modified.

Full Text:

In view of the revocation of Mimeograph 6490, C.B. 1950-1, 9, and Revenue Ruling 55-58, C.B. 1955-1, 97, which dealt with the Federal income tax treatment of amounts received by inventors from the assignment or exclusive licensing of their patents, the Internal Revenue Service has given further consideration to the position stated in Revenue Ruling 54-409, C.B. 1954-2, 174, with respect to the tax treatment of amounts received by a copyright proprietor for a grant of the exclusive right to exploit a copyrighted work.

Revenue Ruling 54-409 deals generally with the circumstances under which a grant of a copyright proprietor's right may confer a license or constitute a transfer of property. The Revenue Ruling holds, in pertinent part, that when the proprietor of a copyright grants the exclusive right to exploit the copyrighted work throughout the life of the copyright in a medium of publication or expression for a consideration which is not measured by a percentage of the receipts from the sale, performance, exhibition, or publication of the copyrighted work, is not measured by the number of copies sold, performances given or exhibitions made of the copyrighted work, and is not payable periodically over a period generally coterminous with the grantee's use of the copyrighted work, the consideration is to be treated as the proceeds of a sale of property and not as rentals or royalties.

Mimeograph 6490 held that, effective for taxable years beginning after May 31, 1950, payments received by inventors from the assignment of a patent or the license of the exclusive right to make, use and sell a patented article under an agreement whereby payments are measured by production, sale, or use by the transferee, or are payable periodically over a period generally coterminous with the transferee's use of the patent, constitute ordinary income. Revenue Ruling 55-58 announced that the Internal Revenue Service would continue to apply the rule of Mimeograph 6490 in cases where section 1235 of the Internal Revenue Code of 1954 was not applicable.

By Revenue Ruling 58-353, C.B. 1958-2, 408, the Service revoked Mimeograph 6490 and Revenue Ruling 55-58 and announced acquiescence in the decisions of the Tax Court of the United States in Edward C. Myers v. Commissioner , 6 T.C. 258, Leonard Coplan et ux. v. Commissioner , 28 T.C. 1189, and Roy J. Champayne v. Commissioner , 26 T.C. 634. This action means that the consideration received by the owner of a patent for the assignment of the patent, or the granting of an exclusive license to such patent, may be treated as the proceeds of a sale of property, for Federal income tax purposes, even though the consideration received by the transferor is measured by production, use, or sale of the patented article.

Since the property rights of patents and copyrights are similar in substance, it is concluded that the Service should adopt, in the case of copyrights, the position that is being taken in the case of patents.

Accordingly, it is held that the consideration received by a proprietor of a copyright for a grant transferring the exclusive right to exploit the copyrighted work in a medium of publication throughout the life of the copyright shall be treated as proceeds from a sale of property, regardless of whether the consideration received is measured by a percentage of the receipts from the sale, performance, exhibition, or publication of the copyrighted work, or is measured by the number of copies sold, performances given, or exhibitions made of the copyrighted work, or whether such receipts are payable over a period generally coterminous with the grantee's use of the copyrighted work.

The modification, here announced, of Revenue Ruling 54-409, supra , is to the effect that assignments of copyrights will not be denied treatment as sales solely because of the form which purchase price takes. In cases where interests resembling royalties are retained by the copyright proprietor along with other rights in the transferred interest, the transaction may under some conditions fail to have the required characteristics of a sale. See Revenue Ruling 58-353, supra .

It should be noted that whether a copyright is a capital asset within the meaning of section 1221 of the Code and when the provisions of section 1302 of the Code with respect to copyrights would apply are separate and distinct questions which are not considered in this ruling.

Revenue Ruling 54-409, supra , is modified to the extent that it holds that the consideration received by the proprietor of a copyright for a grant of the exclusive right to exploit the copyrighted work in a medium of publication is to be treated as proceeds from a sale of property only if the consideration received is not measured by the publication, use, or sale of the copyrighted work, and is not payable over a period generally coterminous with the grantee's use of the copyrighted work.

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