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A royalty is a payment received for the use of intangible assets such as patents, copyrights, trademarks, secret processes, artistic work and the rights to natural resources. These payments are taxed as ordinary income. Your an author, artist or musician and are receiving royalty payments for your work. These payments are considered earned income and if you are living overseas, the income may be excludible under the foreign income exclusion.
The fair market value of the rights acquired by the author under the contract was not taxable to her in the year the right to publish the novel was sold to the publisher. Payments under the contract are taxable to the author when actually received. Although the publishing contract resulted in a sale, the rule that unfunded deferred compensation payments are taxed when received should prevail over the contrary rule that the fair market value of rights on a sale are, if capable of valuation, taxed in the year of sale.