Re: tax implications of copyright termination

On Wed, 22 Sep 1999, John Noble <jnoble[_at_]dgsys.com> wrote:
>
> I'm not a tax lawyer, and property law was a long time ago, but I'm
> confused by your terminology. In the first example, with the
> restrictions on access to the work, it seems to me that the potential
> problem is that the gift is incomplete. I don't see how the deduction
> is voided by the creation of a "remainder interest." In fact it seems
> that its the remainder interest, after the expiration of the access
> restrictions, that is the gift, and you would value the gift and the
> deduction as the eventual value of the unrestricted gift, which is
> still a wash for tax purposes.

Oh boy, I'm not a lawyer at all, just a poor archivist, so I knew I was going to get fouled up on language here. I also realize that such questions need concrete examples and the paid advice of a lawyer. But in order to further my education, I will try to be clearer.

As I understand it, in my first example the problem is with Title 26, Section 2522(c)(2). This says (with some qualifying language removed): "Where a donor transfers an interest in property... to a person, and an interest in the same property is retained by the donor..., no deduction shall be allowed under this section for the interest which is, or has been transferred to the person." I gather from reading Moynihan's comments on S. 217 that this has been interpreted to mean that if you limit access to your papers, you have retained an interest in the property, and therefore you can claim no charitable deduction for the gift. If the value of the material you partially transferred was high enough, you might even be subject to a gift tax.

In copyright terms, would the right to be able to terminate a copyright transfer (as stipulated in copyright law) be considered "an interest retained by the donor," and thus negate any possibility of deducting the donation on one's taxes (or even worse be faced with having to pay a gift tax if the value of the copyright was greater than $10,000)?

> Your question regarding the effect of 203 also seems to confuse a
> remainder with a potential reversion, raising the possibility that
> the value of the potential reversion would have to be deducted from
> the value of the present gift in order to value the gift. Still a
> wash. I don't see a remainder interest.

You seem to be suggesting that the potential reversion interest represented by 203 is _not_ a retained interest as stipulated in 2522(c)(2), and thus may have answered my question!

Peter B. Hirtle
pbh6[_at_]cornell.edu Received on Wed Sep 22 1999 - 20:17:33 GMT