Question: Taxpayer, a cash method taxpayer, owned all the stock in a company that owned all the rights in a new type of X-ray scanning device which had an extremely speculative value. She had owned the stock for three years and had a $100,000 cost basis in it. She had owned the stock for three years and had a $100,000 cost basis in it. She sold the stock to a big electronics firm for $50,000 cash and 2 percent of the earnings generated by the scanning device over the succeeding life of the electronics firm and she made a section 453(d) election. Although her right to earnings is speculative, she receives $2,000 in each of the succeeding years.
Q1. What are the tax consequences to Taxpayer in each year?
Q2. Would your result in (a), above. Be altered if Taxpayer is an accrual method taxpayer?
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