Example – Gift of a CopyrightIf the donor is the creator of the copyrighted material, a charitable income tax deduction will not be generated if he or she gifts the copyright to charity during their life. This is because federal law creates a non-assignable right for the creator to terminate the grant of a copyright. 17 U.S.C. 203. This limitation also applies to donors who are the creator's surviving spouse, child or grandchild who inherits the copyright.
Carleton is the author of a children's book. His copyright on the book is worth $10,000 but his cost basis in the copyright is $10, which is the cost of the pencils and paper he used to create the book. During his lifetime, Carleton gifted the copyright to his friend, Cullen. Cullen's cost basis in the copyright is the same as Carleton, $10. If Cullen donates his entire interest in the copyright to charity, he can deduct the lesser of his cost basis or the fair market value of the copyright. Therefore, Cullen can deduct only the $10 carryover cost basis.
Example – Gift of Copyright and Copyrighted Material by Creator
Constance is the author of a book of poetry about nature. She wants to gift the book and the book's copyright to a charity that protects local open spaces. However, Constance is advised that she will not get a charitable deduction for the value of her copyright and copyrighted material if she gives them to charity during life. This is because Constance's gift is not a gift of her entire interest, since by federal law she would retain the right to revoke her transfer at any time. Even if Constance tries to give up her right to revoke, she cannot. Constance is unable to donate her entire interest in the copyright and copyrighted material to charity during her lifetime. As a result, Constance decides to leave the copyright and copyrighted material to charity in her will. Upon her passing, her estate will receive a charitable estate tax deduction for the value of the copyright and copyrighted material that goes to charity.
Example – Gift of Copyright and Copyrighted Material from Non-creator
Maria owns the rights to a popular children's song and its original recording. She did not create the song but instead purchased both the song and the original recording several years ago. Maria would like to give the song copyright to charity but wishes to retain ownership of the original recording. She learns, however, that doing so is considered a partial interest gift and she will not receive a charitable income tax deduction for the value of the copyright. As a result, Maria decides to give both the copyright of the song and the original recording of the song to charity to receive a charitable income tax deduction for her gift.
Example – Gift of Fractional Interest in Copyright
Bill and Frank purchased a copyright for a song back in the 1970's. The song has been highly popular throughout the decades. Bill and Frank are co-owners of the copyright, each owning one-half interest in the copyright. Bill wants to give his one-half interest in the copyright to charity and Frank wants to retain his one-half interest. While Bill is giving a fractional interest of the copyright to charity, the interest constitutes his entire interest in the copyright. As such, Bill will be entitled to a charitable deduction.
Example – Charitable Gift of Qualified Intellectual Property - CopyrightThere are also various anti-abuse rules in place to discourage "bundling" or the creation of other entities to circumvent these rules. In addition, gifts of copyrights held by the creator (or a donor who received a carry-over basis from the creator) are not considered qualified intellectual property for purposes of additional QDI deductions under Sec. 170(m). As such, any QDI received by the charity derived from the copyright held by a creator or inheriting heir cannot be deducted by the donor in future years.
Matt held a copyright to a screenplay he purchased eight years ago. Matt donated the copyright and elected the qualified intellectual property treatment five years ago. Every year since its creation, Matt's copyright has produced an income that exceeded his cost basis by $1,000. In the year following the donation, Matt was able to deduct the full $1,000. By year five, Matt was only able to deduct $700.