## Facts

- Curtis T. Busse invented a method and machine for stacking cans on pallets and assigned an undivided one-half interest to his brother in 1958.
- A patent issued in 1960; after the brother’s death in 1962, his one-half interest passed to his widow.
- In 1966, Busse and his sister-in-law formed Busse Bros., Inc., each owning 50% of the stock.
- The shareholders orally agreed to sell their entire patent interests to the corporation.
- Consideration was payable in quarterly installments for the life of the patent, equal to 5% of the corporation’s net selling price of devices covered by the patent.
- In 1967, the corporation paid Busse $36,029.01 under the agreement; the Busses reported it as long-term capital gain.
- The Commissioner asserted a deficiency, applying I.R.C. § 483 to treat a portion of the payments as unstated interest taxable as ordinary income.
- The Tax Court held the patent-specific exception in I.R.C. § 483(f)(4) applied and found no deficiency; the Commissioner appealed.

## Issues

1. Whether I.R.C. § 483 could impute unstated interest to Busse’s deferred, contingent patent payments, or whether the patent exception in I.R.C. § 483(f)(4) barred § 483’s application.
2. Whether a court may depart from the clear statutory text of § 483(f)(4) based on policy concerns about perceived tax advantages.

## Decision

- The Seventh Circuit affirmed the Tax Court.
- The court held the § 483(f)(4) patent exception applied because the amounts were contingent on the productivity/use of the patented property.
- As a result, no portion of the 1967 payments could be recharacterized as unstated interest under § 483, and no deficiency existed.
- The court rejected the Commissioner’s request to override the statute’s literal terms on policy grounds.

## Legal Principles

- Under I.R.C. § 483(f)(4) (now redesignated), § 483 does not apply to patent-sale amounts contingent on the productivity, use, or disposition of the transferred patent rights.
- When a tax statute’s language is clear and fits the transaction, courts apply the text as written, even if the result appears inconsistent with the general anti-avoidance purpose of the broader provision.
- Courts and the Commissioner lack authority to revise statutory exceptions based on perceived “symmetry” or fairness; correction of any policy mismatch is for Congress.

## Conclusion

The court held that contingent payments for the sale of patent rights calculated as a percentage of sales qualified for the patent exception to § 483, preventing any imputed-interest recharacterization and eliminating the asserted income tax deficiency.


Busse v. Commissioner, 479 F.2d 1147 (7th Cir. 1973)