Sunday, January 02, 2005

New rules on tax deductions for donated patents

From the Des Moines Register on federal tax deductions for IP.

Under the new rules, the publication said, "donors must deduct either the amount they spent to create the item or its fair market value, whichever is smaller."

"Previously," the Chronicle added, "all donors could deduct the fair market value of the items, including their potential to bring in future income, whether or not the charity ever realized the income."

The Chronicle quoted Grassley as saying: "Corporations have been reducing their tax bill by hundreds of millions of dollars each year by taking intellectual property of little or no value and donating it to a charity." The new law, he added "ends this abuse by corporations while still encouraging the donation of legitimate intellectual property that has real value for actual development."

Not true, said William Rooklidge, a California lawyer who is president of the American Intellectual Property Law Association. The new law amounts to "throwing the baby out with the bath water," he said "There could be a real detriment to universities," which are the largest recipients of donated patents.

Wamsley said, "We don't think Senator Grassley and the others fully understood the ramifications" of the change.

The Intellectual Property Owners Association repeatedly sent letters to Grassley and others during the past year, opposing the change that was ultimately adopted.

"Some valuable patented technologies do not meet the specific business plans of the company that invented and owns them," Wamsley said in the letters. "Rather than allow these valuable technologies to lie dormant, the tax code provides an incentive to businesses to donate their patents to nonprofit entities that have the ability to develop, improve and commercialize them," the letters say. "IP donations provide the opportunity for new technologies to be developed and applied in a practical way to meet society's medical, environmental or other needs."

Not all donated patents result in financial gains for universities. In fact, most don't, according to officials at the U of I and Iowa State University.

But even when patents don't produce income, they still have value as teaching tools, they said.

Wamsley believes the budget deficit drove the decision to severely limit tax deductions associated with intellectual property donations.

The change is expected to generate $3.5 billion in tax revenue over 10 years. "That made it look very attractive to tax writers at a time when they were looking for savings" to cover the huge federal deficit, he said.

On the other hand, he said, "it's impossible to put a dollar amount on the effect of this on the economy," in part because patents, like the one that Cargill gave to the U of I, provide public benefit, even when they don't generate income.

"A lot of individuals feel the new law will kill any future donations to institutions," said Nita Lovejoy, associate director of the ISU Research Foundation.

While ISU has not "received a lot of donations that have been terribly fruitful, there are other institutions that have," she said.


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