OT: Tax Attorney / Advisor with Copyright Law Experience

[XBoxBoy]

Hey all you smart Piggies,

I’m looking for a tax attorney (or adviser, or CPA) who has experience and knowledge about handling the tax implications of copyright licensing. Experience in the entertainment industry might be helpful. Can anyone suggest someone, or suggest how to find such a person? Feel free to send me a private message if you don’t want to post publicly.

Thanks,

XBoxBoy

[XBoxBoy]

Anybody????

[Kingside]

You might try David Branfman

http://branfman.com/

[njtosd]

Has the licensing already been done? If its just a matter of how to treat the earnings on a license, a tax attorney (w/o IP experience) should be able to help you. (I saw a few cases saying that straight licensing fees are ordinary income). If you are trying to figure out how to structure it – I would recommend using a tax person and a separate IP attorney. The likelihood of finding someone with a specialty in both fields and your technical area (presumably computer science) is kind of low.

[XBoxBoy]

[quote=njtosd]Has the licensing already been done? If its just a matter of how to treat the earnings on a license, a tax attorney (w/o IP experience) should be able to help you. (I saw a few cases saying that straight licensing fees are ordinary income). If you are trying to figure out how to structure it – I would recommend using a tax person and a separate IP attorney. The likelihood of finding someone with a specialty in both fields and your technical area (presumably computer science) is kind of low.[/quote]

My goal is to figure out if it can be structured so that money coming in is treated as capital gains instead of as ordinary income. I can probably modify the licensing without much problem. I’ve spent a good bit of time researching the IRS publications and looking at the actual tax code and I believe it could be possible, but that little details that are not well explained could be very important, thus I’m looking for someone with real experience in these matters.

Thanks,

XBoxBoy

[njtosd]

[quote=XBoxBoy][quote=njtosd]Has the licensing already been done? If its just a matter of how to treat the earnings on a license, a tax attorney (w/o IP experience) should be able to help you. (I saw a few cases saying that straight licensing fees are ordinary income). If you are trying to figure out how to structure it – I would recommend using a tax person and a separate IP attorney. The likelihood of finding someone with a specialty in both fields and your technical area (presumably computer science) is kind of low.[/quote]

My goal is to figure out if it can be structured so that money coming in is treated as capital gains instead of as ordinary income. I can probably modify the licensing without much problem. I’ve spent a good bit of time researching the IRS publications and looking at the actual tax code and I believe it could be possible, but that little details that are not well explained could be very important, thus I’m looking for someone with real experience in these matters.

Thanks,

XBoxBoy[/quote]

Again – I would look for two people who would work well together as opposed to finding a single person. I am a patent attorney, as is my husband and lots and lots of friends. I haven’t ever heard of anyone who has a second specialty in tax (they require significantly different educational backgrounds). FWIW – I think you have an uphill battle. Copyrights are excluded from the definition of capital assets under section 1221 of the IRS Code. Here’s a good article to at least familiarize yourself with the issues:

Federal Income Tax Treatment of the
Development, Acquisition and Disposition
of Intellectual Property

http://www.sheehan.com/uploads/pdf/new%20folder/nhbar_journal_federal_tax_treatment_fall2006_ptb_cjh.pdf

Note – it was written by a tax guy and a second guy (presumably familiar with IP).

[XBoxBoy]

[quote=njtosd]FWIW – I think you have an uphill battle. Copyrights are excluded from the definition of capital assets under section 1221 of the IRS Code. [/quote]

njtosd,

Thanks for all the input. Yes, I think it might be an uphill battle. But then again, I did find the following in IRS Publication 544, (page 3) which deals with gains and losses, and specifically says:

[quote=IRS Publication 544]
Copyright. Payments you receive for granting the exclusive use of (or right to exploit) a copyright through out its life in a particular medium are treated as received from the sale of property.
[/quote]

In my particular case I am granting the exclusive use of my copyright to a company to use forever on a specific medium, so this would seem to apply.

But I can’t find a section of tax code that says anything like that. So, that’s why I’m thinking I need a tax attorney. And, yes, I think your idea of looking for two people might be the way to go.

(Actually I might only need a good tax attorney, since all the IP issues are already a done deal. I just need to make sure that the wording in contracts doesn’t botch the tax advantages that might be out there.)

Thanks

[Hatfield]

I suspect you’re gonna find out that it’ll be treated as passive income.

[XBoxBoy]

Follow up to this:

Turns out that under IRS Regulation §1.861–18 there are a fair number of situations where money earned from selling a copyright right of software is treated as a capital gain. (And fortunately for me, I fall under one of those cases)

Those who have interest in this can see the regulation here:

http://www.gpo.gov/fdsys/pkg/CFR-2010-title26-vol9/pdf/CFR-2010-title26-vol9-sec1-861-18.pdf

XBoxBoy

[njtosd]

[quote=XBoxBoy]Follow up to this:

Turns out that under IRS Regulation §1.861–18 there are a fair number of situations where money earned from selling a copyright right of software is treated as a capital gain. (And fortunately for me, I fall under one of those cases)

Those who have interest in this can see the regulation here:

http://www.gpo.gov/fdsys/pkg/CFR-2010-title26-vol9/pdf/CFR-2010-title26-vol9-sec1-861-18.pdf

XBoxBoy[/quote]

Are you licensing (as you said earlier) or selling (usually referred to as “assigning”). In real estate terms it’s the difference between selling a home and renting it out.

[XBoxBoy]

[quote=njtosd]
Are you licensing (as you said earlier) or selling (usually referred to as “assigning”). In real estate terms it’s the difference between selling a home and renting it out.[/quote]

I don’t know that I’m clear on the semantics you are asking. (Or maybe I wasn’t clear earlier) But I’m granting an exclusive perpetual right to use my copyright and that’s what the regulation seems to hinge on. (And if I read this correctly, the regulation says this is a sale of the copyright right) If the right is limited to less than the expected useful life or if the right is not exclusive, then you probably don’t qualify for treating the money as capital gains. (Instead it is renting the copyright right)

Also, the regulation specifically points out it doesn’t matter if you call it royalties or not so I would think that using the word licensing would not matter either. (Although I’m no expert, I’m relying on the advice given by professionals, so don’t take my word on it)

XBoxBoy

[Hatfield]

I think the semantics are important. Here’s another way of asking. Who owns the copyright today? Did you assign (sell) the right (has there been a change of ownership?) or did you merely grant a license and you still own the copyright?

Your language of “granting an exclusive perpetual right” sounds like you have not assigned (sold) the underlying entity. If you still own it, it still sounds like passive income to me regardless of how your payment gets structured or whether the license you granted is exclusive or not.

[XBoxBoy]

Hatfield, what I call it doesn’t matter. What matters is the IRS regulation and the facts of the deal. To understand it better I would suggest looking at the regulation and understanding the concept outlined in it of copyright rights, and the concept that you can sell the copyright rights even though you don’t sell the copyright.

As to semantics, read paragraph (g)(1) which specifically points out that how the transaction is classified by the parties or by copyright law does not determine how this regulation classifies it.

For those interested in this whole ball of wax, I also highly recommend the examples which give a good sense of how to apply the rules of this regulation.

If you’re curious about my situation, I won’t give out specific details, but say only that my case is pretty close to example 5 which is considered the sale of a copyright right.

But keep in mind here that I’m not an attorney, nor a CPA or anything like that, and that if you or anyone else wants to pursue something like this I highly recommend doing what I did, which was to get professional advice from someone who has experience and does understand these things.

XboxBoy

[njtosd]

[quote=XBoxBoy]you can sell the copyright rights even though you don’t sell the copyright.

[/quote] Um – I hope those are your words and not an attorney’s. . . Anyway – here is the question: If they stop paying, who does the copyright belong to? If you have assigned (sold it), the copyright no longer belongs to you, and your only recourse would be to sue for breach of contract. Generally speaking, you don’t assign without getting the money up front, just as you wouldn’t transfer title on a house without getting the money up front.

Here’s at least one question. Copyrights, to be enforceable, must be registered with the U.S. (for US citizens) Copyright Office. Who do THEY think owns it? Have you filed a document with the Copyright office assigning the ownership of the copyright to someone else?

[XBoxBoy]

[quote=njtosd][quote=XBoxBoy]you can sell the copyright rights even though you don’t sell the copyright.

[/quote] Um – I hope those are your words and not an attorney’s. . . Anyway – here is the question: If they stop paying, who does the copyright belong to? If you have assigned (sold it), the copyright no longer belongs to you, and your only recourse would be to sue for breach of contract. Generally speaking, you don’t assign without getting the money up front, just as you wouldn’t transfer title on a house without getting the money up front.

Here’s at least one question. Copyrights, to be enforceable, must be registered with the U.S. (for US citizens) Copyright Office. Who do THEY think owns it? Have you filed a document with the Copyright office assigning the ownership of the copyright to someone else?[/quote]

Njtosd, Thanks for all your concern, but as I mentioned above I’m not going to get into specifics of my situation in an online forum.

But two simple points.

1) If I understand correctly your questions center around what the copyright law would say about selling copyright rights, but I’m not talking about copyright law, but instead about tax regulations. Interesting that you were the one who pointed out that the laws would be different and it would be best to get separate advice on the two topics. Ironically, I think you’re proving your own point, although maybe you don’t see that. (I believe you mentioned you are a patent attorney) My comments above should not be taken to have any bearing on ownership under the copyright laws, only on the way the IRS views things.

2) The words above were my words, however they are just a simplified version (perhaps bastardization would be a better term) of words in the regulation:
“A transfer of a computer program is classified as a transfer of a copyright right if, as a result of the transaction, a person acquires any one or more of the rights described in paragraphs (c)(2)(i) through (iv) of this section.”
Again keep in mind this is only relevant to the tax regulation, not to actually ownership of the copyright under copyright law.

XboxBoy

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