By Paul Morinville & Gene Quinn

Published by IPWatchdog

HR 1, the Tax Cuts and Jobs Act, passed the House of Representatives on November 16, 2017 by a vote of 227-205. Within HR 1 is a provision to change 26 U.S.C. 1221(a), 26 U.S.C.1231(b)(1) and 26 U.S. Code § 1235,), which address the way patents are treated from a tax perspective. See Tax Bill Proposes Repeal of Capital Gains Treatment for Patents. Currently, patents are treated like other property in that when a patent is sold, profit from the sale is taxed at a long -term capital gains rate. In effect, the changes to patent tax treatment contained within HR 1 changes the nature of a patent into something other than a property right such that when a patent is sold it will be considered income for tax purposes. This proposed change would dramatically increase the taxes paid to the government, perhaps doubling the amount of taxes paid.

Despite being named “the Tax Cuts and Jobs Act”, HR 1 is yet another blow in a long string of incredible damage to patent rights and investment in the earliest stages of commercializing new technologies. This proposed change to U.S. tax law will prove to be devastating to independent investors and startups seeking investment, which means it will be unquestionably harmful to job creation. What this means, of course, is that the Tax Cut and Jobs Act is another wildly misnamed Act, much like the Orwellian named America Invents Act that destroyed inventing in America through the creation of the Patent Trial and Appeal Board.

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