Heim v. Fitzpatrick

Lewis Heim (the plaintiff) applied for a patent for a new invention. He then assigned his invention, future improvements, and any patents that might be issued for the invention to The Heim Company. The plaintiff’s patent applications were successful, and the patents were issued to The Heim Company. Under the terms of his assignment agreement, the plaintiff retained the right to receive certain royalty payments, reversionary rights to cancel the assignment, and decision-making rights related to future patents. The plaintiff assigned these rights to his family members and only paid federal gift taxes on the assignments to his family. Additionally, the plaintiff’s family members were not found to be under the plaintiff’s exclusive control or influence. The federal tax commissioner (the defendant) determined a deficiency in the plaintiff’s tax returns because his gross income should have included the royalty payments received by his family members. The plaintiff petitioned the United States Tax Court for a redetermination and filed a motion summary judgment, which was denied. The tax court entered judgment in favor of the commissioner, holding that, under Helvering v. Eubank, 311 U.S. 122 (1940), the royalty payments assigned to his family members constituted gross income to the plaintiff. The plaintiff appealed.