1. 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 $ 50,000 cash and a 2 percent of the earnings generated by the scanning device over the succeeding life of the electronics firm and she made a 453(d) election. Although her right to earrings is speculative, she receives $2000 in each of the succeeding years.

(A) What are the tax consequences to Taxpayer in each year?

(B) Would your result in (a), above, be altered- if Taxpayer is an accrual method taxpayer?