tax implications of copyright termination

Tax law isn't normally part of the discussion here, but perhaps someone can help me work through a rather peculiar situation involving copyrights.

First, a little background. Recently some estate planning lawyers have looked at the matter of individuals who donate their personal papers to historical repositories such as libraries or archives. In general, such a transfer has no estate or gift tax consequences. While the value of any such transfer may be subject to taxation as a theoretical matter, as a practical matter the gift will not be taxed because a corresponding charitable deduction would be available. Estate planning lawyers are now arguing that if the donor restricts access to the papers for some stipulated period of time (a not uncommon occurrence), a remainder interest in the papers is created and the charitable deduction is voided. The donor may even have to pay gift taxes on the donation.

Fortunately Senator Moynihan has introduced a bill (S. 217) to address this issue. S. 217 only covers restrictions on the right of access, however; it does not address any of the tax implications associated with the transfer of copyright to the repository (also not an unusual situation).

The above discussion concerns the transfer of physical property; I am interested if a similar tax argument could be made about the transfer of intellectual property. It would seem to me that the termination of transfer rights in Section 203 could also constitute a remainder interest in any transfer of copyright, similar to the ability to limit access to physical papers. It would be unfair to claim that someone could not take a charitable deduction for the donation of copyrights because the law forces them to maintain an interest in the property, but then tax law has never been noted for being fair.

So, does anyone have any thoughts on whether Section 203 creates for tax purposes a remainder interest in the property, thus negating its value as a charitable donation? Does anyone know if this issue has ever been addressed by the IRS and/or the Tax Courts?

Peter B. Hirtle
pbh6[_at_]cornell.edu Received on Tue Sep 21 1999 - 12:41:29 GMT