1. Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

   		Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments.
   		Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment.
   		Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments.
   		Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments.

2. $20,000.
   		The investor has a short-term capital loss of $20,000.
   		The investor has a nondeductible loss of $20,000.
   		The investor has a short-term capital gain of $20,000.