The American Job Creation Act of 2004 made significant changes in the allowable charitable deduction to donors from the donation of Intellectual Property to a charitable organization. These provisions, which affect donations received by the university after June 2004, allow the donor additional deductions for the net income that the intellectual property makes in the 10 years following donation. The donee is required to report to the donor and the Internal Revenue Service (IRS) the net income derived from the donated intellectual property each tax year.
Donor Requirements
The donor who contributes intellectual property must notify the donee in writing that they intend to treat the donation as a “qualified intellectual property contribution.” “Qualified intellectual property” includes patents, specific copyrights, trademarks, trade names, trade secrets, know-how, specific software or other similar intellectual property. The notice must contain the following information:
- The donor’s name, address and taxpayer identification number (TIN).
- A sufficiently detailed description of the qualified intellectual property.
- Date of contribution.
- A statement that the donor intends to treat the contribution as a qualified intellectual property contribution as per applicable Internal Revenue Code Sections.
The donor will be allowed an initial deduction of the lesser of the fair market value or the donor’s adjusted basis in that property. In the years following the initial donation, the donor will be entitled to deduct an applicable percentage ranging from 100% to 10% of net income the donee receives from the intellectual property. The term of this additional deduction is limited to the lesser of 10 years from the date of the contribution or the legal life of the donated property. The amount of this additional deduction is limited to the cumulative excess of the donee’s earnings during the 10 year period over the initial contribution deduction.
Donee Requirements
As the donee, the university is required to report to the IRS and the donor annually for the 10 year period following the initial gift. The report must be made by the 30th day of the month following the closing of the donee’s tax year. This acknowledgement form (IRS Form 8899) requires the following information:
- The name, address and TIN of the donor.
- Description of the qualified intellectual property contributed.
- Date of the contribution.
- Amount of donee net income for the taxable year which is properly allocated to the qualified intellectual property for any portion of the 10 year period from the date of the contribution. The determination of the net income will be the responsibility of the department using/licensing the technology.
- Other information specified by the form or its instructions.
While we believe that there are few gifts of intellectual property made to the university, it is important that the Tax Department be advised of any such gifts. The Tax Department must also be advised of the information required for the acknowledgement form as noted above. Please forward the information to Joseph McGarry at joe_mcGarry@wustl.edu or Campus Box 1034.