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TITLE 26-INTERNAL REVENUE CODE treated as other than gain from the sale or exchange of a capital asset; and (C) a loss attributable to failure to exer- cise an option described In section 1233(c). (b) Treatment of grantor of option in the case of stock, securities, or commodities (1) General rule In the case of the grantor of the option, gain or loss from any closing transaction with respect to, and gain on lapse of, an option in property shall be treated as a gain or loss from the sale or exchange of a capital asset held not more than 9 months. (2) Definitions For purposes of this subsection- (A) Closing transaction The term "closing transaction" means any termination of the taxpayer's obligation under an option in property other than through the exercise or lapse of the option. (B) Property The term "property" means stocks and se- curities (including stocks and securities dealt with on a "when issued" basis), com- modities, and commodity futures. (3) Nonapplication of subsection This subsection shall not apply to any option granted in the ordinary course of the taxpayer's trade or business of granting op- tions. (Aug. 16, 1954, ch. 376, 68A Stat. 329; Sept. 2, 1958, Pub. L. 85-866, title I, § 53, 72 Stat. 1644; Nov. 13, 1966, Pub. L. 89-809, title I, § 210(a), 80 Stat. 1580; Oct. 4, 1976, Pub. L. 94-455, title XIV, § 1402(b)(1)(U), title XXI, § 2136(a), 90 Stat. 1732, 1929.) TAXABLE YEARS AFTER 1977 Subsec. (b)(1) of this section amended by Pub. L. 94-455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, effective with respect to taxable years beginning after Dec. 31, 1977, by substituting "I year"for "9 months". AMENDMENTS 1976-Subsc. (a). Pub. L. 94-455, § 2136(a), added to subsec. (a) heading the phrase "in the case of the pur- chaser"; designated existing provisions as par. "(1) General rule" and substituted therein "an option" and "the option" for "a privilege or option" and "the option or privilege"; redesignated existing subsec. (b) as par. (2) and substituted therein "an option" and "the option" for "a privilege or option" and "the privi- lege or option"; and redesignated existing subsec. (d)(1) to (3) as par. (3)(A) to (C) and substituted in the subsec. heading and introductory text "Nonapplica- tion" and "subsection" for "Non-application" and "sec- tion", in par. (3)(A) "an option" for "a privilege or option", in par. (3)(B) "an option", "such option" and "subsection" for "a privilege or option", "such privi- lege or option" and "section" and in par. (3)(C) substi- tuted a period for "; or". Subsec. (b. Pub. L. 94-455, §§ 1402(b)(1)(U). 2136(a), added subsec. (b). incorporating provisions of a prior subsec. (c) providing for a special rule for grantors of straddles, par. (1) relating to "gain on lapse" and read- ing "In the case of gain on lapse of an option granted by the taxpayer as part of a straddle, the gain shall be deemed to be gain from the sale or exchange of a cap- ital asset held for not more than 6 months on the day that the option expired."; par. (2) relating to "excep- tion" and reading "This subsection shall not apply to any person who holds securities for sale to customers In the ordinary course of his trade or business.", now covered in subsec. (b)(3); and par. (3) relating to defi- nitions of "straddle" and "security"; and provided in par. (1) that "6 months" would be changed to "9 months" for taxable years beginning in 1977. Subsec. (c). Pub. L. 94-455, § 2136(a), deleted provi- sion respecting special rule for grantors of straddles, the paragraphs relating to: (1) gain on lapse; (2) excep- tion, now covered in subsec. (b)(3); and (3) definitions of "straddle" and "security", such provision now cov. ered generally by subsec. (b) of this section. Subsec. (d). Pub. L. 94-455, § 2136(a), deleted provi- sion respecting non-application of section, pars. (1) to (3) now covered in subsec. (a)(3)(A) to (C) of this sec- tion, and par. (4) providing for such non-application to gain attributable to the sale or exchange of a privilege or option acquired by the taxpayer before Mar. 1, 1954, if in the hands of the taxpayer such privilege or option was a capital asset. 1966-Subsec. (c). Pub. L. 89-809 added subsec. (c) and redesignated former subsec. (c) as (d. Subsec. (d). Pub. L. 89-809 redesignated former subsec. (c) as (d. 1958-Pub. L. 85-866 amended section generally and among other changes provided in subsec. (a) that gain or loss resulting from option to buy or sell property is to be considered gain or loss arising from property which has the same character as the property under- lying the option, incorporated existing provisions in subsecs. (b) and (c)(3), and added provisions set out in subsec. (c)(1), (2), (4). EFFECTIVE DATE OF 1976 AMENDMENT Section 1402(b)(1) of Pub. L. 94-455 provided in part that the substitution of "9 months" for "e mnonths" in subsec. (b)(1) of this section by section 1402(b)(1)(U) of Pub. L. 94-455 is effective with respect to taxable years beginning in 1977. Section 2136(b) of Pub. L. 94-455 provded that: "The amendment made by subsection (a) [amending this section] shall apply to options granted after Sep- tember 1, 1976." EFFECTIVE DATE OF 1966 AMENDMENT Section 210(b) of Pub. L. 89-809 provided that: "The amendments made by subsection (a) [adding subsec. (c) and redesignating former subsec. (c) as (d] shall apply to straddle transactions entered into after Janu- ary 25, 1965, in taxable years ending after such date." EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85-866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c) of Pub. L. 85-866. set out as an Effective Date of 1958 Amendment note under section 165 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 1233 of this title. § 1235. Sale or exchange of patents (a) General A transfer (other than by gift, inheritance, or devise) of property consisting of all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights, by any holder shall be considered the sale or exchange of a capital asset held for more than 9 months, regardless of whether or not pay- ments in consideration of such transfer are- (1) payable periodically over a period gener- ally coterminous with the transferee's use of the patent, or (2) contingent on the productivity, use, or disposition of the property transferred. Page 689 § 1235