When a US company transfers ownership for a pending patent application via an assignment to a company outside the US, say for 1 Dollar, are there any tax implications to worry about?

As for the 1 Dollar, I suppose at the pending stage, the argument can be made that the patent application has no substantial value yet and is potentially worthless (and potentially rejected).

  • This often done to transfer to a wholly owned subsidiary set up just to hold the company's patents. I would image that has an impact on the tax situation. – George White May 7 '20 at 22:29

The US company is liable for tax at the market value of the thing sold

This won’t be less than $1 but could be considerably more. The IRS will accept a reasonable valuation of the asset based on reasonable assumptions. Factors involved would include the likelihood of a successful application, the cost of commercialising it and the expected revenue, all assessed on a forward looking basis (i.e. without the benefit of hindsight).

  • Are you sure about this? It would seem odd to assess the full market value of the patent for tax purposes based on "likelihood of success" and "expected revenue". I've been a part of such a transaction and I know that the company was not immediately taxed on the factors you talk about. I can see this for a patent currently earning a company significantly more than the purchase price, but for a patent-pending/application, there is no market value... – Ron Beyer May 7 '20 at 22:40
  • @RonBeyer of course there’s a market value. No doubt your accounts worked it out and decided it was less than the sale price - which may be quite a legitimate valuation. An application for a pat ant is just as much an asset as an actual patent or a piece of real estate or an option over a piece of real estate. – Dale M May 7 '20 at 23:47

As in many situations like this, the answer to the question can be easily found if another, preliminary question is asked: why?

Assuming that, economically, the fair market value of the transferred asset (whatever it is) is $1,000 and it was transferred for only $1 - there must be some reason why this was done that way, as opposed to a sale for $1,000, which is what you would expect if the transaction was done at arm's length:

Maybe the transferree is a charity and the the transfer was done for charitable purposes: that's one possible tax treatment.

Maybe the the transferor received stock/equity in the transferre: that's another.

Maybe the transferee is owned by a relative of the transferor and it was done as a gift: yet another.

Or there may have been some other, unstated, reason (repayment of debt?).

So, find out the reason and the tax treatment will suggest itself.

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