Jean Reinhard
Issues
1-. What are the tax consequences if Jean & Joseph create the corporation by transferring the Tricometer intellectual property and more than $10,000 of cash so that corporation can acquire the patent, trade name and trademark?
2-. What are the tax consequences if Jean & Joseph jointly acquire the patent, trade name and trademark; create the corporation with more than $10,000 cash; and license the patent, trade name and trademark to the corporation in return for royalties?
3-. Add another step to#2, i.e. giving the intangibles to children under 16 or over 15?
Facts
Jean Reinhard and Joseph Glid are presently paid engineers employed by General Electric Company. They are both subject to the highest marginal income tax rate. They derive their income primarily from their salaries, but both also have substantial investment income. They have, in their spare time, developed a device called Tricometer, which is capable of automatically adjusting light intensity in a room as external illumination increases or decreases. Jean and Joseph have determined that the market for this device will be very large and plan to form a corporation to produce and sell the device. Each will own 50% of the corporation’s stock. There are a number of expenses which must be incurred with respect to the tricometer. First, they must obtain a trademark for the tricometer. Second, they must obtain a trade name, “Tricometer”. Third, they must have the tricometer patented. Finally, they will incur about $10,000 in other expenses in organizing the corporation. Jean and Joe need to know if they should pay these expenses individually and then assign the trademark, trade name and patent to the corporation. Or, should they first form the corporation and have it pay the expenses out of the money they contribute to it together with their know-how and rights in the tricometer, in exchange for their 50% interest in the corporation? Or, should they pay the Tricometer expenses individually, license
1-. What are the tax consequences if Jean & Joseph create the corporation by transferring the Tricometer intellectual property and more than $10,000 of cash so that corporation can acquire the patent, trade name and trademark?
2-. What are the tax consequences if Jean & Joseph jointly acquire the patent, trade name and trademark; create the corporation with more than $10,000 cash; and license the patent, trade name and trademark to the corporation in return for royalties?
3-. Add another step to#2, i.e. giving the intangibles to children under 16 or over 15?
Facts
Jean Reinhard and Joseph Glid are presently paid engineers employed by General Electric Company. They are both subject to the highest marginal income tax rate. They derive their income primarily from their salaries, but both also have substantial investment income. They have, in their spare time, developed a device called Tricometer, which is capable of automatically adjusting light intensity in a room as external illumination increases or decreases. Jean and Joseph have determined that the market for this device will be very large and plan to form a corporation to produce and sell the device. Each will own 50% of the corporation’s stock. There are a number of expenses which must be incurred with respect to the tricometer. First, they must obtain a trademark for the tricometer. Second, they must obtain a trade name, “Tricometer”. Third, they must have the tricometer patented. Finally, they will incur about $10,000 in other expenses in organizing the corporation. Jean and Joe need to know if they should pay these expenses individually and then assign the trademark, trade name and patent to the corporation. Or, should they first form the corporation and have it pay the expenses out of the money they contribute to it together with their know-how and rights in the tricometer, in exchange for their 50% interest in the corporation? Or, should they pay the Tricometer expenses individually, license
References: Bank, S., & Stark, K. (2013). Selected sections: Corporate and partnership income tax code and regulations, 2013-2014. St Paul: Foundation Press. IRS. Businesses. Retrieved November 2, 2014, from http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Intangibles Diagram