Taxpayer, a cash method taxpayer, owned all the stock in a company that owned all the rights in a new type of X-ray scanning device which had an extremely speculative value. She had owned the stock for three years and had a $100,000 cost basis in it. She sold the stock to a big electronics firm for 10 percent of the earnings generated by the scanning device over the succeeding 25 years. Although her right to the earnings was speculative she received $15,000 in each of the 25 succeeding years.

a. What are the tax consequences to Taxpayer in each year?

b. Would your result in (a) above, be altered if the taxpayer is an accrual basis taxpayer?

c. What result in (a), above, if the maximum stated sales price is $300,000, and after 20 years having paid $300,000 the electronics firm terminates their payments?