March 20, 2003 | Read Time: 2 minutes
The IRS has issued a revenue ruling that explains how certain contributions of patents to charities may — or may not — qualify for charitable deductions. Revenue rulings from the IRS are designed to help the public by stating the government’s official position on aspects of tax law.
In a hypothetical example, the IRS said that if a donor gave a university a license to use a patent, but retained the right to license the patent to others, the gift would not be deductible because it was the transfer of only a “partial interest” in the patent.
In another example, the revenue service said that a donor to the university could not take a charitable deduction for a gift of a patent made on condition that a specific faculty member (and expert in the technology covered by the patent) stay at the university for the 15-year life of the patent or the donor would get the patent back.
The IRS cited tax law that would permit a deduction for such a conditional gift only if the possibility that the gift would not be made — in this case, would have to be returned to the donor — was “so remote as to be negligible.” The chance that the professor might leave before 15 years would not qualify as remote, the IRS concluded.
In a third example, the tax agency said a donor could take a charitable deduction for a gift of a patent that carried no restrictions except that the university could not sell or license the patent for three years. The reason: The restriction did not interfere with the transfer of the gift from the donor to the charity.
But the IRS added that the time restriction on the sale or licensing of the gift would reduce what would otherwise be the fair market value of the patent and thus reduce the amount of the donor’s charitable contribution.
Revenue Ruling 2003-28 appears in Internal Revenue Bulletin 2003-11.
