The U.S. Court of Appeals for the Third Circuit affirmed a decision of the U.S. Tax Court that had determined that because the taxpayer had not transferred “all substantial rights” to certain pharmaceutical technology, the royalties received by the taxpayer constituted ordinary income.
The Tax Court found the amounts the taxpayer received were not eligible for capital gains treatment because the taxpayer had retained “valuable rights in the technology” that were the subject of the transfer. The Tax Court thus sustained the deficiency determinations of more than $4 million for 2007 and over $1.7 million for 2008. Read TaxNewsFlash
On appeal, the taxpayer asserted before the Third Circuit that the rights were transferred prospectively—an argument, the Third Circuit noted, that was not presented to the Tax Court. The case is: Spireas v. Commissioner, No. 17-1084 (3d Cir. March 26, 2018). Read the Third Circuit’s decision [PDF 473 KB] that includes a dissenting opinion.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.