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From An IRS Publication...

Patents
Under a special rule (IRS Part 1235), the transfer of a patent by an individual is treated as a sale or exchange of a capital asset held more than 1 year. This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent.

This treatment applies to your transfer of a patent if you meet all the following conditions:
* You are the holder of the patent.
* You transfer the patent other than by gift, inheritance, or devise.
* You transfer all substantial rights to the patent or an undivided interest in all such rights.
* You do not transfer the patent to a related person.

Holder
You are the holder of a patent if you are either:
* The individual whose effort created the patent property and who qualifies as the original and first inventor, or
* The individual who purchased an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions, and who is neither related to, nor the employer of, the inventor.

All substantial rights
All substantial rights to patent property are all rights that have value when they are transferred. A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent.

In the following transfers of patent rights, all substantial rights are not transferred, and the holder is not entitled to the special tax treatment.

* The rights are limited geographically within a country.
* The rights are limited to a period less than the remaining life of the patent.
* The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer.
* The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer.

Related persons:
The special tax treatment does not apply if the transfer is either directly or indirectly between you and a related person, as defined earlier under Sales and Exchanges Between Related Persons, with the following changes.

Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters.
If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), above, does not apply. Thus, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. The brother-sister exception does not apply because the trust relationship is independent of family status.

This is a complex and little-known provision of the tax law, and you should solicit expert advice from a professional knowledgeable in this field in order to ensure that you gain the most favorable tax treatment.

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