TXX5766 Creator, a U.S. person, invents the cure for cancer in his basement. Cre
ID: 2593082 • Letter: T
Question
TXX5766
Creator, a U.S. person, invents the cure for cancer in his basement. Creator transfers the cure for cancer to a company in the Cayman Islands ("CAYco"), which does not have to pay any income tax under Cayman Islands law. For U.S. tax purposes, the transaction is treated as:
a tax-free incorporation.
a one-time sale by Creator to the Cayman Islands company.
a sale in return for a series of annual royalty payments.
d)
none of the above.
a)a tax-free incorporation.
b)a one-time sale by Creator to the Cayman Islands company.
c)a sale in return for a series of annual royalty payments.
d)
none of the above.
Explanation / Answer
The correct answer is option B.
It is one-time sale(transfer) by the creator to a company in Cayman Islands. As the company does not have to pay any income tax under Cayman Islands Law for the income generated from the cure of cancer, thus, under US Tax purposes it would be regarded as sale of the royalty and charged to tax.
Therefore,the correct answer is option B where the transaction is treated as one-time sale by creator to the cayman Islands company.
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