20 CFR 404.429(b)(2)
This ruling Supersedes SSR 72-12 C.B. 1972, p. 71 (Except for the technical change in the wording of the holding and the footnote, this ruling is a reprint of SSR 72-12.)
A question has been raised as to whether royalties received from property by a social security beneficiary after age 65, under a patent pending in or prior to the taxable year in which the beneficiary attained age 65, would be excluded from gross income for annual retirement test (deduction) purposes.
Section 203(f)(5)(D) of the Social Security Act (42 U.S.C. 403(f)(5)(D)) provides, in pertinent part:
there shall be excluded from gross income any such royalties.
In the absence of instructive legislative history, it may reasonably be inferred that the basis for the exclusion of earnings from gross income under the provision above is that an individual should be considered retired for social security purposes if his only earnings result from work undertaken by him before he reached age 65. The test for excluding royalties for purposes of section 203(f)(5)(D) of the Act, is thus whether the beneficiary "completes" work undertaken prior to the taxable year in which he attained age 65 for which work a copyright or patent was obtained.
The reference in this section to a "patent obtained before the taxable year is which he attained the age of "65" (emphasis added) envisages completion by the individual of his work effort and the securing by him of a "patent pending." The term "patent," as used here, refers to a franchise given by the Government to an inventor, conveying and securing to him the exclusive right to make, use and sell his invention for a term of years. Reeves Bros. Inc. v. U.S. Laminating Corp., 282 F.Supp. 118, 134 (E.D. N.Y., 1968) aff'd 417 F.2d 869 (2 Cir., 1969).
The term "invention" as employed in the Patent Act (35 U.S.C. 1, et seq.) comprises the conception of an idea and its "reduction to practice," i.e., converting the mental idea to a tangible form. Jamesbury Corp. v. Worchester Valve Co., 318 F. Supp. 1 (Mass., 1970). The date of filing the application for a patent is presumed to be the date of the invention. Monplastics Inc. v. Caldor Inc., 378 F.2d 20 (2 Cir., 1967). The U.S. Supreme Court has held that patents pending at the time of application are part of the "prior art" and are available as a bar to a second patent application. Hazeltine Research Inc. v. Brenner, 382 U.S. 252 (1965), rehearing den. 382 U.S. 1000 (1966). In Reeves Bros. Inc., supra, at page 872, the filing date of the application was found to be "more relevant to the issue of simultaneous invention than the date of issues of the patent." The filing of the application marks the completion of the individual's creative work product and of his part in the process of obtaining the patent. Thus, an individual should be considered to have reduced his idea to practice as of the date he filed his application. (35 U.S.C. 111 et seq.) At such time, he should be considered to have "obtained" a patent for purposes of Section 203(f)(5)(D) of the Social Security Act.
Accordingly, it is held that any royalties received in or after the taxable year in which a beneficiary attains age 65 must be excluded from his gross income where, prior to the taxable year he attained age 65 he had filed application for a patent on his invention, and the patent is subsequently granted. Further held, denial of the patent application would result in all earnings accruing therefrom being recognized for deduction purposes and any overpayments resulting therefrom would be subject to prescribed adjustment procedures.
Back to Table of Contents