Royalties

Royalties
Royalties
446.1 Accumulated; attributable to loss
years. Where mineral property is leased under an
agreement that royalties will accumulate but not
become payable until the mine operates at a profit,
depletion on the accumulated royalties should be
deducted in the year of receipt or accrual. A.R.M.
17, superseded. §§1.446-1, 1.611-2. (Secs. 446,
611; ’86 Code.)
Rev. Rul. 68-565, 1968-2 C.B. 263.
446.2 Advance; cash and nonrecourse notes.
Neither a cash nor an accrual basis taxpayer may
deduct as advanced mineral royalties either the
amount of actual cash payments or non recourse
notes that are payable only to the extent of the proceeds
received from the sale of the minerals. The
cash paid is a deferred expense to be taken into
account as part of the cost of the minerals sold,
§1.612-3. (Sec. 612, ’86 Code.)
Rev. Rul. 80-73, 1980-1 C.B. 128.
446.3 Advance; coal; substantially uniform.
An accrual method limited partnership entered
into a sublease under which it was to pay a royalty
based on coal production, an advanced payment
recoupable from future coal production royalties,
and, in subsequent years, a minimum advanced
payment based on the prior 3 years coal production.
The advanced payment and the payments in
subsequent years are not substantially uniform in
amount and do not qualify as advanced royalties
paid or accrued according to the minimum royalty
provisions under reg. 1.612-3(b)(3). §1.612-3.
(Sec. 612, ’86 Code.)
Rev. Rul. 79-381, 1979-2 C.B. 244.
446.4 Advance; consumer price index adjustments.
A taxpayer entered into a lease under
which it is to pay an annual advanced minimum
royalty. The designated annual advanced royalty
payments are to be adjusted annually as a result of
changes in the Consumer Price Index (CPI). The
advanced payments, thus adjusted as a result of a
change in the CPI, will qualify as advanced minimum
royalty payments paid in connection with a
mineral property. §1.612–3. (Sec. 612, ’86 Code.)
Rev. Rul. 81-299, 1981-2 C.B. 138.
446.5 Advance; depletion computation.
Advanced royalties that a taxpayer paid under a
mineral lease and elected to deduct from gross
income in the year of payment must be excluded
from gross income from the property for purposes
of computing percentage depletion for the subsequent
year in which the mineral is produced and
sold. Such royalties are not deductible from gross
income, as defined in section 61, in the year of production.
§§1.612-3, 1.613-2. (Secs. 612, 613; ’86
Code.)
Rev. Rul. 79-386, 1979-2 C.B. 246.
446.6 Advance; loan agreement. A composer
assigned copyrights to subsidiaries and their parents
loaned him $50,000 for which he executed ten
$5,000 non-interest-bearing notes, payable one a
year for 10 years. The first note was paid by applying
$5,000 of royalties due him in the year of the
loan. Held, the $50,000 was a loan, not advance
royalties, except to the extent of the royalties
earned and applied to the note. (Sec. 61, ’86 Code.)
Harold Arlen, 48 T.C. 640, Acq., 1968-1 C.B.
2.
446.7 Advance; oil and gas leases; percentage
depletion. Taxpayers who received advance royalty
or lease bonus income from lessees of their oil
and gas property interests in 1975 are entitled to an
allowance for percentage depletion for that year
even though no oil or gas was produced until 1976,
§1.613A. (613A, ’86 Code.)
Engle, 464 U.S., Ct. D. 2023, 1984-1 C.B. 148.
446.8 Advance; plan of liquidation. Advance
royalty payments received in 1977 by a calendaryear
corporation, subsequent to the adoption of a
plan of complete liquidation, for coal that is mined
on land it has owned for more than 9 months qualify
as payments received from a “sale or
exchange” of property for purposes of section
337(a). However, if the right to mine coal under
the contract expires, terminates, or is abandoned
before the coal is mined, the corporation must treat
the payments attributable to the unmined coal as
ordinary income. §§1.337–1, 1.631-1. (Secs. 337,
631; ’86 Code.)
Rev. Rul. 77-109, 1977-1 C.B. 87.
446.9 Advance; timber. Advanced royalties
paid or accrued by a lessee under a timber cutting
contract in a taxable year for timber not cut during
that year are nondeductible under the provisions of
reg. 1.612–3(b)(3), but are to be added to the lessee’s
depletable basis in the timber. §§1.612–3,
1.631-2. (Secs. 612, 631; ’86 Code.)
Rev. Rul. 77-400, 1977-2 C.B. 206.
446.10 Advance; when deductible. A taxpayer
who pays or accrues advance minimum royalties
in connection with the lease of mineral property
may currently deduct only that portion of the minimum
royalties due over the term of a lease that is
properly attributable to the current tax year, Rev.
Ruls. 70-20 and 74-214 revoked. Amplified by
Rev. Rul. 80-70. §§1.446-1, 1.461-1, 1.612-3,
301.7805-1. (Secs. 446, 461, 612, 7701, 7805; ’86
Code.)
Rev. Rul. 77-489, 1977-2 C.B. 177.
446.11 Advance; when deductible. An
advanced mineral royalty resulting from a minimum
royalty provision and covering a 12-month
period extending beyond the taxable year when
paid or incurred is not fully deductible in the year
when paid or incurred. Only the portion properly
attributable to the current taxable year is deductible
in the current taxable year. The cost of minerals
extracted in subsequent years must be reduced
by the advanced royalties deducted to date. Rev.
Rul. 77-489 amplified. §§1.461-1, 1.612-3.
(Secs. 461, 612; ’86 Code.)
Rev. Rul. 80-70, 1980-1 C.B. 104.
446.12 Assigned coal leases; controlled corporations.
Taxpayer-shareholder assigned coal
property leases to his controlled corporation for
overriding “royalties.” Held, only a portion of the
amounts paid by the taxpayer were deemed excessive
and therefore considered to be corporate dividends;
amounts held to be royalties were fully
deductible by the corporation and the difference
between the royalties received by the taxpayer and
the overriding royalties he paid to others was taxable
as capital gains. (Secs. 162, 631; ’86 Code.)
Robert Lee Merritt, 39 T.C. 257, Acq., 1967-2
C.B. 3.
446.13 Coal; interest in lease received for services.
A royalty interest in a coal lease received by
an individual from a coal company for services in
obtaining that lease, or other leases, for the com-

Royalties
pany is not subject to capital gains treatment under
section 631(c), but is ordinary income subject to
percentage depletion. Amounts received by the
individual for obtaining coal leases determined by
a rate per ton of coal purchased and processed by
the coal company are not subject to capital gains
treatment, but are ordinary income not subject to
depletion. §§1.611-1, 1.631-3. (Secs. 611, 631;
’86 Code.)
Rev. Rul. 77–84, 1977–1 C.B. 173.
446.14 Coal; surface lease. Royalty payments
received under a lease granting the lessee the right
to enter upon, use and/or destroy surface lands in
order to prospect for and mine coal, the extraction
of which is or will be covered by other leases, are
not proceeds from the disposal of coal within the
meaning of section 631(c). §1.631–3. (Sec. 631,
’86 Code.)
Rev. Rul. 79-144, 1979-1 C.B. 219.
446.15 Coal land; advance; interest v. royalties.
A partnership disposed of its working interest
in leased coal property by contracting, as part of
the same transaction, for a mining company to
strip all the overburden from the tract in incremental
parcels and for the mining company to sublease
each parcel after stripping of the parcel was completed.
Advances to the mining company for use
in stripping the parcels under the sublease agreement
to be repaid to the partnership in an amount
equal to the amounts advanced constitute a loan,
not development costs, Amounts received by the
partnership exceeding repayment of the loan and
interest are royalties from the sale of coal; stripping
costs incurred by the mining company are
operating cost, nondevelopment costs. §§1.616–1,
1.631–3. (Secs. 616, 631; ’86 Code.)
Rev. Rul. 77–308, 1977–2 C.B. 208.
446.16 Coal land; exercise of option to purchase.
Royalty payments received in exchange for
an option to purchase coal land are not subject to
capital gains treatment under section 631(c), but
are taxable as ordinary income and subject to
depletion deductions. §§1.61-8, 1.611-1,
1.613-1, 1.631-3, 1.1231-1. (Secs. 61, 611, 613,
631, 1231; ’86 Code.)
Rev. Rul. 73-80, 1973–1 C.B. 308.
446.17 Coal land; lease to joint venture;
interest of lessor. Royalty income received by a
power company for the lease of its coal lands, held
more than six months, to a joint venture that
included as a member the company’s wholly
owned subsidiary and that sells the coal to the
company is subject to the capital gains treatment
under section 631. §§1.631-3, 1.1231–1. (Secs.
631, 1231; ’86 Code.)
Rev. Rul. 73–33, 1973–1 C.B. 307.
446.18 Coal lease agreement between members
of affiliated group; economic interest
retained. An arms-length coal lease agreement in
1972 between members of an affiliated group filing
consolidated returns, in which the owner-lessor
retained an economic interest and the lessee
obtained the right to mine and dispose of the coal,
does not constitute a deferred intercompany transaction
within the meaning of reg. 1.1502–13
(a)(2)(i) or (iii). Section 631(c) applies to the royalty
payments received by the owner-lessor.
§§1.611-1, 1.631–3, 1.1502-13. (Sec. 611, 631,
1502; ’86 Code.)
Rev. Rul. 74-10, 1974-1 C.B. 251.
446.19 Coal or iron ore; bonuses and
advanced royalties; rulings. As a condition to
issuing a ruling that lessors of coal and iron ore
may treat bonuses or advanced royalties as
received from a sale of coal or iron ore under section
631(c), the lessors will be required to enter
into a closing agreement with respect to their tax
liability. §1.631–3. (Sec. 601, 201, S.P.R.; Sec.
631, ’86 Code.)
Rev. Proc. 77-11, 1977-1 C.B. 568.
446.20 Contested; accrual basis taxpayer. An
accrual-method corporation and another company,
under a cross-licensing and royalty agreement,
paid each other a 2-percent royalty on the
contract price of items covered by the other’s patents.
Under the Royalty Adjustment Act of 1942,
the Navy Department determined the royalties to
be excessive for Navy contracts, and ordered the
royalties suspended and the government reimbursed.
After appeal, a compromise 1-percent royalty
rate was reached. Held, the corporation was
entitled to deduct royalties payable at the rate of 2
percent while they remained legally contested but
was not required to include the contested royalties
receivable in income. (Secs. 41, 43, ’39 Code;
Secs. 446, 461, ’86 Code.)
Foster Wheeler Corp., 20 T.C. 15, Acq., 1953-2
C.B. 4.
446.21 Escrow account; ownership in dispute.
Royalty payments deposited in escrow
pending litigation regarding ownership of land are
not to be included in the lessor’s income for the
years in which they would otherwise have been
payable, but should be reported as income for the
year in which the litigation is settled or the lessor’s
right to the royalties is established in some other
way. I.T. 1212 superseded. §1.451–1. (Sec. 451,
’86 Code.)
Rev. Rul. 70-66, 1970-1 C.B. 114.
446.22 Exempt organization; beneficial
owner of patents. Amounts received from licensees
by an exempt organization, the legal and beneficial
owner of patents assigned to it by inventors
for specified percentages of future royalties,
constitute royalty income that is excludable in
computing unrelated business taxable income.
Rev. Rul. 73-193 distinguished. §1.512(b)-1.
(Sec. 512, ’86 Code.)
Rev. Rul. 76-297, 1976-2 C.B. 178.
446.23 Exempt organization; patent development
deductions. Patent development and management
services fees deducted from royalties
collected from licensees by an exempt charitable
organization for distribution to beneficial owners
of the patents is not within the exception for royalties
provided by section 512(b) in determining
“unrelated business taxable income” of the
organization. Distinguished by Rev. Rul. 76–297.
§1.512(b)-1. (Sec. 512, ’86 Code.)
Rev. Rul. 73-193, 1973-1 C.B. 262.
446.24 Foreign personal holding company
income. A nonresident foreign corporation was
entitled to a percentage of patent royalties paid by
an American licensee to the foreign owner of the
patents. Held, nonresident was contractually
entitled to a percentage share in the owner’s
income, not an interest in the patents or royalties
as such; the payments received from the licensee
were not received from sources within the U.S.
and were not royalty income. (Secs. 119(a),
502, ’39 Code; Secs. 543, 861, ’86 Code.)
Hopag S.A. Holding de Participation et de Gestion
de-Brevets Industriels, 14 T.C. 38, Acq.,
1953-1 C.B. 4.
446.25 Foreign trademark; initial U.S. sale.
Royalties for the use of a foreign trademark on
products that are ultimately used in foreign countries
are income from sources without the U.S.
even though the initial sale of the articles took
place in the U.S. §§1.861-5, 1.862-1. (Secs. 861,
862; ’86 Code.)
Rev. Rul. 68-443, 1968-2 C.B. 304.
446.26 Income in respect of decedent;
decendent’s contract. Royalty payments
received by a taxpayer under a contract executed
by her mother (now deceased) as executrix of the
estate of her father constitute taxable income to the
taxpayer. However, she is entitled to deduct that
portion of the estate tax paid which is attributable
to the inclusion in the widow’s estate of the right
to receive such royalty payments. Clarified and
distinguished by Rev. Rul. 60-227. §1.691(a)-2.
(Sec. 691, ’86 Code.)
Rev. Rul. 57-544, 1957-2 C.B. 361.
446.27 Income in respect of decedent; license
arrangement; death of patent-holder. Where a
contract between a patent owner and a manufacturer
constitutes merely a “license” arrangement
to manufacture and sell articles under the patent in
return for the payment of royalties, and not a
“sale,” royalty payments due and accrued under
the contract at the date of the death of the inventor
constitutes income in respect of a decedent. Royalty
payments accrued after the date of death of the
patent owner are ordinary income, includable in
the gross income of the recipient. Rev. Rul.
57-544 clarified and distinguished. §§1.61-8,
1.691(a)-1. (Secs. 61, 691; ’86 Code.)
Rev. Rul. 60-227, 1960-1 C.B. 262.
446.28 Invention; stockholders paid for use.
A corporation was allowed to deduct the cost of
royalties paid to its two controlling stockholders
for the use of their invention after the stockholders
had given the corporation an irrevocable royaltyfree
license to use the invention with the understanding
that suitable compensation would be
agreed upon at a later date. (Sec. 23(a), ’39 Code;
Sec. 162, ’86 Code.)
Heathbath Corp., 14 T.C. 332, Acq., 1957-2
446.29 Mineral properties; interest retained.
A grantor’s retention of a royalty interest payable
out of mineral production is a retention of an economic
interest, which makes the transaction
incompatible with a sale; thus, lump sum payments
received by him are ordinary income. Paul
White decision not followed. §1.1231–1. (Sec.
1231, ’86 Code.)
Rev. Rul. 63-120, 1963–1, C.B. 141.
446.30 Mineral properties; lump sum payment
for rights. A lump sum payment received by
the owner of land purportedly for fee simple title
to all minerals in and under the land, but in conjunction
with which he retained a royalty interest
in any minerals produced from the land, is ordinary
income and not proceeds from the sale of a
capital asset. G.C.M. 27322 superseded.
§§1.61-1, 1.1231-1. (Secs. 61, 1231; ’86 Code.)
Rev. Rul. 69-352, 1969-1 C.B. 34.
446.31 Mineral properties; lump sum payment
for rights; interest retained. The lump sum
payment received for a 65 percent interest in the
minerals in place is not subject to a depletion
allowance under section 611. The payment is for
the sale of a capital asset defined in section 1221
and entitled to capital gain treatment. §§1.611-1,
1.1221-1. (Secs. 611, 1221; ’86 Code.)
Rev. Rul. 82-221 1982–2 C.B. 113.
446.32 Mineral properties; sale and leaseback
with subsidiary. Where a parent corporation,
for a price equivalent to book value, transfers
mineral properties to a wholly owned subsidiary
and leases back from the subsidiary for specified
royalty payments in order to benefit from the
allowance of both cost and percentage depletion,
the transaction will be disregarded. §§1.61–3,
1.162-1, 1.611-1, 1.612-1, 1.613–1. (Secs. 61,
162, 611, 612, 613; ’86 Code.)
Rev. Rul. 68-430, 1968-2 C.B. 44.
446.33 Nonresident alien; author; withholding.
Royalty payments made by a domestic publisher
to a nonresident alien author while visiting
the U.S., or to his designated domestic bank or resident
agent, are subject to income tax withholding.

Further, when payment is to a resident agent and
the author’s status is unknown to the publisher the
duty of withholding devolves upon the agent. I.T.
2524 superseded. §§1.861-5, 1.871-2, 1.1441-2,
1.6851-2. (Secs. 861, 871, 1441, 6851; ’86 Code.)
Rev. Rul. 70-468, 1970-2 C.B. 171.
446.34 Nonresident alien; bank as tax agent;
withholding. A domestic corporation is not
relieved from the requirement to withhold tax at
the rate of 30 percent from royalties paid to a nonresident
alien by reason of the fact that the alien
has appointed a domestic bank to act as his agent
for purposes of paying his taxes in the U.S. O.D.
1087 superseded. §§1.871–1, 1.1441-4. (Secs.
871, 1441; ’86 Code.)
Rev. Rul. 69-655, 1969-2 C.B. 168.
446.35 Nonresident alien; books and stories
published in U.S. Payment received by a nonresident
alien author from a domestic corporation
under a contract granting the corporation the first
American serial rights in his exclusive output of
both long and short stories and the right to publish
in the U.S. all his new books, but not prescribing
in any manner what or when he is to write, are royalties
from sources within the U.S. subject to withholding
at the 30 percent tax rate. §1.871-1. (Sec.
871, ’86 Code.)
Rev. Rul. 76-555, 1974-2 C.B. 202; Rev. Rul.
76-283, 1976-2 C.B. 222.
446.36 Nonresident alien; books printed in
U.S.; withholding. Royalty payments made by a
domestic corporation to a nonresident alien for
books printed in the U.S. by the corporation and
sold exclusively in a foreign country under that
country’s copyrights are not taxable as income
from sources within the U.S. and, therefore, are
not subject to income tax withholding. I.T. 3296
superseded. §§1.861-5, 1.862-1, 1.1441-2.
(Secs. 861, 862, 1441; ’86 Code.)
Rev. Rul. 72–232, 1972-1 C.B. 276.
446.37 Oil and gas; information returns.
Information return, Form 1099, required to be
filed by the payers of oil and gas royalties, with
respect to royalty payments aggregating $600 or
more for a calendar year, must show the gross
amounts due the royalty interest owners rather
than the net amounts paid to such owners after
withholding for various taxes levied by states.
§1.6041-1. (Sec. 6041, ’86 Code.)
Rev. Rul. 66-198, 1966-2 C.B. 488.
446.38 Oil and gas in place. If a royalty interest
in oil and gas in place is used by the owner in his
trade or business, it is not a capital asset but will
be subject to the provisions of section 1231 if held
for more than six months; if the royalty is held for
investment, gain or loss on its sale is a capital gain
or loss; and if the royalty is held for sale in the ordinary
course of business, gain or loss on its sale is
ordinary gain or loss. Rev. Rul. 55–526 superseded.
§§1.1221–1, 1.1222–1, 1.1231–1. (Secs.
1221, 1222, 1231; ’86 Code.)
Rev. Rul. 73-428, 1973-2 C.B. 303.
446.39 Oil and gas lease; interest received for
service. A corporate promoter, an attorney, and an
employee of a closely held corporation, receive
overriding royalty interests for services provided
in connection with the acquisition/development of
oil and gas leases. Each has received a property
interest, the fair market value of which is includible
in gross income under section 83. §1.83–1.
(Sec. 83, ’86 Code.)
Rev. Rul. 83-46, 1983-1 C.B. 16.
446.40 Oil and gas lease; irrevocable trust for
minors. Royalty income attributable to an undivided
one-half of one-eighth nonparticipating royalty
interest in an oil and gas lease, transferred to
an irrevocable trust by a husband and wife for the
benefit of their minor children, is includable in the
trust’s gross income. However, any of the trust
income used for the support or maintenance of the
minors is included in the grantor’s gross income.
§§1.61-1, 1.671-1. (Secs. 61, 671; ’86 Code.)
Rev. Rul. 71-130, 1971-1 C.B. 28.
446.41 Oil and gas lease; royalty transferred
in trust. The donative assignment to a trust, established
for the benefit of a college, of an overriding
royalty interest created from an oil and gas leasehold
presently owned and retained by the grantor,
is not an anticipatory assignment of income. The
trust income will not be taxable to the grantor even
though the term of the trust is less than the economic
life of the overriding royalty, providing the
grantor is not considered the owner of the trust.
§1.671-1. (Sec. 671, ’86 Code.)
Rev. Rul. 67-118, 1967-1 C.B. 163.
446.42 Oil and gas lease; undivided interest.
No part of the royalty payments received by the
lessor of an undivided interest in oil and gas producing
properties, under a lease agreement providing
that, from month to month, the royalty percentages
could decrease or increase based on
average daily gross production for the previous
three consecutive month periods, is a production
payment. §1.636-3. (Sec. 636, ’86 Code.)
Rev. Rul. 76-34, 1976-1 C.B. 177.
446.43 Patent; paid majority stockholderpresident.
A royalty paid by a corporation to its
majority stockholder-president for the use of a patent
on an article manufactured by the corporation
is deductible as a business expense, if the amount
is reasonable. O.D. 440 superseded. §1.162–11.
(Sec. 162, ’86 Code.)
Rev. Rul. 69-513, 1969-2 C.B. 29.
446.44 Patent; paid to nonresident alien by
foreign corporation. An individual who is a citizen
and resident of a foreign country with which
the U.S. has no income tax convention licensed the
U.S. rights on a patent to a Netherlands corporation
that relicensed the rights to a U.S. corporation
for use in the U.S. The patent royalties paid to the
individual are subject to U.S. tax, and the Netherlands
corporation is required to withhold the tax
from the royalties. §§1.861-5, 1.871-7, 1.1441-1.
(Secs. 861, 871, 1441; ’86 Code.)
Rev. Rul. 80-362, 1980-2 C.B. 208.
446.45 Patent; rights assigned to wife. A husband
paid Federal gift taxes on an absolute assignment
to his wife of his right to receive royalties
under a patent sales contract. Held, the transaction
was a transfer of ownership, not an assignment of
income, and the husband was not taxable on the
income received by the wife. (Sec. 22(a), ’39
Code; Sec. 61, ’86 Code.)
Franklin A. Reece, 24 T.C. 187, Acq., 1960-2
C.B. 6.
446.46 Patent; rights to trusts. The taxpayer
transferred to irrevocable trusts, created for his
wife and minor childern, the exclusive right, title,
and interest in and to a patent application, receiving
from the trusts a license to make, use, and sell
the article covered in the application at a graduated
royalty rate. The trusts were to continue until the
children reached majority. The taxpayer retained
no power to change the beneficiaries, direct the
accumulation or withholding of income, or change
trustees. Held, the trust income was not taxable to
the taxpayer, and he could deduct the royalties
paid under the license agreement as a business
expense. (Secs. 22(a), 23(a), ’39 Code; Secs. 61,
162, ’86 Code.)
John T. Potter, 27 T.C. 200, Acq., 1957-2 C.B.
6.
446.47 Patent; transfer; retention of interest.
The mere retention of an interest resembling a royalty
by an assignor or transferor of a patent, in a
transaction which otherwise has the characteristics
of a sale but does not come within the purview
of section 1235, will not, in and of itself, prevent
capital gains treatment. Mim. 6490 and Rev. Rul.
55-58 revoked. §§1.61-1, 1.1222-1, 1.1235-1.
(Secs. 22(a), 117(a), ’39 Code; Secs. 61, 1222,
1235, ’86 Code.)
Rev. Rul. 58-353, 1958-2 C.B. 408; Edward C.
Myers, 6 T.C. 258, Roy J. Champayne, 26 T.C.
634, Leonard Coplan, 28 T.C. 1189, Acqs.,
1958-2 C.B. 4, 6.
446.48 Personal holding company; oil and
gas lease. Amounts received by a personal holding
company under a lease agreement with a drilling
company providing for the delivery to the lessor of
a one-eighth part of the oil and gas produced and
for the sale of such oil and gas to the lessee for a
stipulated price are royalties for purposes of computing
personal holding company income.
§1.543-1. (Sec. 543, ’86 Code.)
Rev. Rul. 73-332, 1973-2 C.B. 195.
446.49 Personal holding company; sub-processing
contract; secret formula. Payments
received by a corporation from a partnership
whose three partners are equal owners of the corporation’s
stock pursuant to a sub-processing contract
containing a secret formula are royalty payments
includable as personal holding company
income. 1.543–1. (Sec. 543, ’86 Code.)
Rev. Rul. 71-596, 1971–2 C.B. 242.
446.50 Publishers and literary agents;
information returns. A publisher making royalty
payments directly to an author, aggregating $600
or more in a calendar year, must file information
returns showing the payments made to the author
and the author’s identifying number. If payment is
made directly to a literary agent in behalf of the
author it must be reported as such, with the agent’s
identifying number. In the latter case the agent
must file information returns for the royalties
received from the publisher showing the gross
amount received, commission retained, and net
amount paid over to the author, together with the
author’s identifying number. Modified to provide
that literary agents must report the gross amount
or royalties received prior to the deduction of fees,
commissions, and expenses. §§1.6041-1,
1.6109-1. (Secs. 6041, 6109; ’86 Code.)
Rev. Rul. 65–129, 1965–1 C.B. 519; Rev. Rul.
67-197, 1967-1 C.B. 319.
446.51 Swedish convention; right to distribute
motion picture films. A payment to a Swedish
resident, corporation, or other entity for the
right to distribute motion picture films in the U.S.
is considered a royalty under Article VI of the
U.S.-Sweden Income Tax Convention for Federal
income tax purposes.
Rev. Rul. 70-134, 1970-1 C.B. 359.
446.52 Swiss convention; net profits interest
in oil and gas mineral property. Payments
received by a Swiss corporation from its net profits
interest in oil and gas mineral property located
in the U.S. are not industrial and commercial profits
within the meaning of Article II(1)(h) of the
U.S.-Swiss Confederation Income Tax Convention
but are rents or royalties taxable by the U.S.
pursuant to Article IX(1) of the Convention.
Rev. Rul. 73-419, 1973-2 C.B. 436.
446.53 Unpatented invention. Percentage payments
the taxpayer received from a corporation to
which he had transferred complete ownership of a
perfected but unpatented invention were part of its
purchase price and reportable as long-term capital
gain, not ordinary income. (Sec. 117, ’39 Code;
Sec. 1231, ’86 Code.)
Franklin S. Speicher, 28 T.C. 938, Acq., 1958-2
C.B. 7.