PRIA Logo™
Title 26 — Internal Revenue CodeRelease 119-73

§1249 Gain From Certain Sales or Exchanges of Patents, Etc., to Foreign Corporations

Title 26 › Subtitle 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

Last updated Apr 6, 2026|Official source

Summary

If a U.S. person sells a patent, invention, model, design, copyright, secret formula or process, or similar property right to a foreign corporation it controls, any gain is taxed as ordinary income instead of the usually lower-taxed capital gain. Control means owning, directly or indirectly, stock with more than 50 percent of the corporation's total voting power, using the indirect-ownership rules in section 958.

Full Legal Text

Title 26, §1249

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)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

Apr 6, 2026

Release point: 119-73