Title 26, Internal Revenue CodeRelease 119-110
§1249 Gain From Certain Sales or Exchanges of Patents, Etc., to Foreign Corporations
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter P — Capital Gains and Losses › PART IV — SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES › § 1249
Summary
When a U.S. person who controls a foreign company sells or exchanges a patent, copyright, or similar intangible to that company, the profit must be treated as ordinary income instead of a capital gain or a section 1231 gain. Control means owning more than 50% of the company’s voting power; section 958 sets the ownership rules.
Full Legal Text
Title 26, §1249
Internal Revenue Code, Source: USLM XML via OLRC
(a)General rule
Gain from the sale or exchange of a patent, an invention, model, or design (whether or not patented), a copyright, a secret formula or process, or any other similar property right to any foreign corporation by any United States person (as defined in section 7701(a)(30)) which controls such foreign corporation shall, if such gain would (but for the provisions of this subsection) be gain from the sale or exchange of a capital asset or of property described in section 1231, be considered as ordinary income.
(b)Control
For purposes of subsection (a), control means, with respect to any foreign corporation, the ownership, directly or indirectly, of stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote. For purposes of this subsection, the rules for determining ownership of stock prescribed by section 958 shall apply.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2014—Subsec. (a). Pub. L. 113–295 struck out “after December 31, 1962,” before “of a patent”. 1976—Subsec. (a). Pub. L. 94–455 substituted “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”. 1966—Subsec. (a). Pub. L. 89–809 substituted “Gain” for “Except as provided in subsection (c), gain”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 1976 AmendmentAmendment by Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
Effective Date
of 1966 AmendmentAmendment by Pub. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89–809, set out as a note under section 11 of this title.
Effective Date
Pub. L. 87–834, § 16(c), Oct. 16, 1962, 76 Stat. 1045, provided that: “The
Amendments
made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1962.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 1249
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110