Don and Irene Kueneman, John R. Kueneman, and Edmund W. And Ella M. Harrell v. Commissioner of Internal Revenue

This is an appeal by five taxpayers from a decision of the United States Tax Court determining deficiencies in their federal income taxes for the years 1971 and 1972. During thése years, appellants Don and Irene Kueneman, John Kueneman, and Edmund and Ella Harrell reported royalty payments received from an exclusive transfer of patent rights within a specified geographical area as long-term capital gains on their federal income tax returns. The Tax Court held that this did not constitute a transfer of “all substantial rights” to the patent within the meaning of Section 1235 of the Internal Revenue Code of 1954, and that appellants could not report royalty payments as long-term capital gains. Notice of appeal was timely filed. Our jurisdiction rests on 26 U.S.C. § 7482 . We affirm.

This case was submitted to the Tax Court on stipulated facts which may be summarized as follows:

Taxpayers Don Kueneman and John Kueneman were the principal investors of a type of rock-crushing machine for which they obtained patents in the 1940’s. In 1946, they entered into an agreement which altered the ownership of the patents so that John Kueneman, Don Kueneman, Alma Harrell, and Cyril Kenville,…