Technical presentation of tax issues in common technology transactions for presentation to attorneys and CPAs.

1. TAX ISSUES FOR IP ATTORNEYS Roger Royse Royse Law Firm, PC 2600 El Camino Real, Suite 110 Palo Alto, CA 94306 [email_address] www.rroyselaw.com www.rogerroyse.com Skype: roger.royse IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication, including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein. February 14, 2011

6. INCORPORATION / FORMATION ISSUES StartUp Inc. [LLC] Technology Services Cash

9. PARTNERSHIP EQUITY TRANSFERS FOR SERVICES Proposed Regulations published May 24, 2005 Rev. Proc. 2001-43 and Rev. Proc. 93-27 Will Be Obsoleted Section 83 Applies to Profits Interest Section 83(b) Election Required for Unvested Profits Interest Partnership Deduction in Year of Employee’s Income Inclusion Partnership Recognizes No Income on Capital Shift Safe Harbor Election Forfeiture Allocations Required Effective When Finalized

17. BUSTED 351 Shareholders Inventor Patent OldCo wants Inventor’s patent for restricted stock Inventor wants OldCo Stock Can’t do a 351 because of 80% requirement OldCo, Inc.

18. TAX FREE REORGANIZATION Merger StartUp LLC INCORPORATED Acquiring Corporation

19. TAX ISSUES – STARTUP, INC. Shareholders Inventor Patent Stock Merger OldCo Stock Step Transaction - sale Continuity of Business OldCo, Inc. NewCo, Inc.

23. COST SHARING Buy In Payment Ownership Of Intangibles Split ownership of Intangibles Share costs and exploitation rights No Intercompany Royalty Can migrate intangibles to Low tax country Current Problems: Nonexclusive Technology reverts on termination Capital Technology Distribution Network Foreign Operations Company US Company

31. CONTRACT MANUFACTURER STRUCTURE US Co Contract Manufacturing [PRC] Manufacturer Local Distributors Products US Sales Service Fees Cash or Property Ownership 100% Contract R&D Service Fees Founder Preferred Shareholder Optionees Technology Ownership Tax Haven Company Ashland Oil v. CIR Vetco Inc. v. CIR Rev. Rul. 97-48 Contract Manufacturer is not a branch Are activities of contract manufacturer attributed to tax haven company?

32. INTERNATIONAL E-COMMERCE OPERATIONS US Company International Holding Company Server Company Local Country Company License/Royalty Commission/Fees Customer Fees/Sales Royalties Cost Sharing License Deemed Sale

34. STATE TAX ISSUES California Parent Nevada IP Holding Co. IP Transfer License Back Services Income Employees Admin, legal and commercial Registrations, enforcement R&D, commercialization

39. ASSOCIATED PATENTEES CHARACTER CONVERTER R&D Partnership “ Sale” of Patent Contingent Payments Developer Corporation Associated Patentees, Inc. : current deduction for payments based on patent’s use or production

40. IP HOLDING COMPANY STRUCTURES Optionees Founder Preferred Shareholder FOREIGN COMPANY HOLDS IP US Sales US Company 100% Contract R&D Service Fees Local Distributors Products Tax Haven Company w/ Technology Service Fees Contract Manufacturing [PRC] Manufacturer

41. IP HOLDING COMPANY STRUCTURES US Sales US Company with Technology Contract R&D Product sales 100% Royalty Tax Haven (HK Office) Technology License 100% Products Service Fees Contract Manufacturing (or License) PRC Manufacturer 100% Local Distributors Local Sales DOMESTIC COMPANY HOLDS IP

49. www.rroyselaw.com PALO ALTO 2600 El Camino Real Suite 110 Palo Alto, CA 94306 SAN JOSE 10 Almaden Blvd. Suite 1250 San Jose, CA 95113 LOS ANGELES 10900 Wilshire Blvd. Suite 300 Los Angeles, CA 90024 SAN FRANCISCO 155 Sansome Street Suite 500 San Francisco, CA 94104