Question:Where to list 1099-MISC(Royalties)income and how to calculete
the Tax? I have a research job in university and received $4500
1099-MISC income in 2002 from educational fund which paid by a company
for patent license. The information from IRS National office technical
advice memorandon(No.200249002,Release Date:12/06/02,Index
No.:1235,Case MIS No.:Tam-117258-02/cc:PSI:B7) said:" conclusion:
Taxpayer is entitled to capital gains treatment under #1235 for
royalties received from university,Which are in exchange for all
substantial rights in the patent to invention."  I was told that the
maximum tax of this income is 20%. Where to list $4500 in 1040 form?
If it goes Schedule E,that means 100% taxble. If it could be treated
as long term capital gains as IRS said, $4500 probbly should be listed
in Schedule D. How?

Dear rc3173,

That's an interesting piece of research. 
Well done. 

Now you want to report the income the way your research directs
you, without generating any undue attention. Got it. 

You probably already know that IRS performs an automated matching
of all W-2s and 1099s to tax returns. Their computer kicks out
any returns that are missing data.

So, the first step is make sure IRS computer finds what they want.

Report the 1099 MISC data on Schedule E as royalties.
Down below, on the Schedule E, where expenses are listed,
enter the $4500. On the text line, put See Statement (#).

Next, write up a brief summary of why this is capital gains
income, with the appropriate reference. Write Statement #
on top of that page and attach it to your tax return. 

Finally, put the $4500 on Schedule D. If it was long term, 
put it in the long-term section - and claim your reduced tax.
If it was short-term, you've done all this for nothing, because
short-term gains are taxed at your ordinary rate.

Does this help?

Your TaxMama-ga