January 8, 2004 | Read Time: 1 minute
The Internal Revenue Service has announced that it plans to crack down on improper charitable deductions claimed for donations of patents and other types of intellectual property. Taxpayers who claim such deductions, the revenue service warned, could be subject to penalties.
The tax agency’s move comes amid concern by Congress over abuses of deductions taken for noncash gifts to charity, including cars and real estate, as well as intellectual property.
The IRS says it also plans to look at financial advisers and charity leaders who promote such gifts, as well as appraisers who overvalue them, saying they could face penalties.
“We’re seeing an increasing number of donations that don’t pass the smell test,” says IRS Commissioner Mark Everson. As a result, “donations that are overly inflated or made with strings attached are going to receive increased scrutiny,” he says.
Some donations that the IRS says aren’t necessarily eligible for a charitable deduction: gifts in which only part of the interest on a patent is donated; gifts that carry a promise of benefits in exchange for a charitable donation; and gifts that are overvalued or in which a donor fails to provide details to prove the value. Last year, the IRS ruled that gifts of patents to charity were not deductible if the donor retained the right to license the patent to others or if the gift was conditional on a particular event, such as a professor’s remaining at a university (The Chronicle, March 20, 2003).
A copy of Notice 2004-7 is available online at http://www.irs.gov/pub/irs-drop/n-04-7.pdf. It will be published in a forthcoming issue of the Internal Revenue Bulletin.
