Hiram Is a Computer Engineer And, While Unemployed, Invents a Switching

Multiple Choice

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

A) Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments.
B) Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment.
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments.
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments.
E) None of the above.