[Wikipedia-l] Dream a little...

Wed Oct 18 20:27:41 UTC 2006

Andrew Gray wrote:

>On 18/10/06, Anthony <wikilegal at inbox.org> wrote:
>  
>
>>No.  Copyrights are only deductible to the extent of the basis in the
>>property (essentially how much you spent to obtain it).  For copyrights
>>purchased from someone else you might also be able to deduct any net income
>>which the charity makes off the copyright.  See the American Jobs Creation
>>Act of 2004.
>>    
>>
>So *that's* what the "basis" is. I was finding that detail
>surprisingly hard to figure out!
>
>"If you donate a patent or other intellectual property ... your
>deduction is limited to the basis of the property or the fair market
>value of the property, whichever is less." - IRS Publication 526.
>
>So does this mean that it's considered valueless until someone has
>bought or sold it - it has no basis until then? I can sort of see how
>this might happen, but it seems conceptually odd on some level...
>
Cost and value are two different concepts.  The "basis" is essentially 
what you paid for the property.  Property can be real, chattel or 
intangible.  For this discussion the emphasis on "intellectual property" 
is on "property" of which this is an intangible form.  The basis can be 
adjusted for various events that occur while you hold the property.  
These adjustments will depend on how the subject country's tax laws are 
structured, and one should never assume that what works in one country 
will work in another.  Among the most common activities that give cause 
for such adjustments are depreciation, depletion or amortization.  Such 
claims will lead to a reduction of the basis.

"Value", in the absence of an actual sale in a fair market, is often an 
artificial amount.  The term "fair market value" represents what would 
be the agreed price paid by a willing buyer to a willing seller in a 
market where both parties have full knowledge of the market conditions.  
This idealized figure is the subject of frequent tax litigation, 
especially since the tax effects on the two parties will usually be in 
conflict.

Where the value exceeds the basis there will be either a profit or a 
capital gain depending on why you had the property in the first place.  
For a person that does not have the property as a part of a business it 
will generally be a capital gain.  When such a property is gifted to a 
charitable organization it triggers a capital gain.  It also triggers a 
charitable donation deduction for the full value.  Under some tax laws 
the net effect will be that you have a deduction for what it cost you to 
buy the property.  One of the motivations behind this kind of legal 
structure is to prevent donations in kind at artificially elevated 
valuations.

Notwithstanding this elementary situation some countries will build in 
more favorable incentives into their tax laws to encourage charitable 
giving.  Because of the complexity of these rules one is well advised to 
review the laws of his own country before making such a donation.  Gifts 
to foreign organizations frequently do not receive the same benefits as 
domestic gifts.

Ec