The question in this case is whether § 117(q) of the Internal Revenue Code of 1939, a 1956 amendment to the Code which effected retroactive changes in the tax treatment of transfers of patent rights, gives rise to a claim for refund barred by the statute of limitations generally applicable to tax refund claims.
In 1952, Mrs. Zacks received royalties of about $37,000 on patents all substantial rights under which she had transferred by way of an exclusive license to a manufacturing corporation. In accordance with the then prevailing rulings of the Commissioner, the royalties were reported as ordinary income in the 1952 joint federal income tax return filed by Mrs. Zacks and her husband in 1953. The last payment of the taxes due was made in 1953. Under the statute of limitations governing a claim for refund of such taxes, the claim was barred in 1956. § 322(b)(1), Internal Revenue Code of 1939, 26 U.S.C. (1952 ed.) § 322(b)(1), 53 Stat. 91. By Act of June 29, 1956, 70 Stat. 404, Congress amended the provisions of the 1939 Code governing the taxability of amounts received in consideration for the transfer of patent rights. The amendment, made applicable to tax years beginning after May 31, 1950, provided that in the circumstances present here such amounts should be taxed as capital gains rather than as ordinary income.
In reliance on this amendment, the taxpayers, on June 23, 1958, filed a claim for a pro tanto refund of their 1952 income taxes. No action having been taken on the claim, they then commenced a refund suit in the Court of Claims. The United States asserted as a defense that the suit was barred by limitations under § 7422(a) of Internal Revenue Code of 1954, 26 U.S.C. § 7422(a), 68A Stat. 876. The Court of Claims granted the taxpayers' motion to strike this defense, 150 Ct.Cl. 814, 280 F.2d 829, and, other issues in the case being settled by stipulation, entered judgment for the taxpayers.
Because of the recurring importance of the problem in the administration of the tax laws and a conflict between the decision below and those of some of the Courts of Appeals, we granted certiorari. 371 U.S. 961, 83 S.Ct. 543, 9 L.Ed.2d 509. For reasons given hereafter, we hold that the taxpayers' claim was barred by limitations and, accordingly, reverse the judgment below.
Section 117(q) here in question provides in pertinent part:
'(Q) Transfer of Patent Rights.-
'(1) General rule.-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 6 months, regardless of whether or not payments in consideration of such transfer are-
'(A) payable periodically over a period generally coterminous with the transferee's use of the patent, or
'(B) contingent on the productivity, use, or disposition of the property transferred.
'(4) Applicability-This subsection shall apply with respect to any amount received, or payment made, pursuant to a transfer described in paragraph (1) in any taxable year beginning after May 31, 1950, regardless of the taxable year in which such transfer occurred.'