Tax Tips Logo ImageISSUE:

Form 990, Part V, Line 7g, asks, “If the organization received a contribution of qualified intellectual property, did the organization file Form 8899 as required?”

SITUATION:

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

We were reviewing TBC’s Form 990 with their CFO.  He wondered about whether they might have received “intellectual property” according to Form 990, Part V, Line 7g.

“We aren’t sure what intellectual property is and there is not an entry in the wonderful Form 990 Glossary about it.  Have we missed something?”

We answered.  “This is a question that is best answered earlier in the year.  By the time we are working on Form 990, the tax year is usually over and you may have missed filing other required forms.  In the Form 990 instructions, we see a definition of ‘intellectual property’ that includes any of the following:

  • Patent
  • Copyright (other than certain self-created copyrights)
  • Trademark
  • Trade name
  • Trade secret
  • Know-how
  • Software (other than certain “canned” or “off-the-shelf” software or self-created software)
  • Similar property
  • Applications or registrations of such property

“Ah.  That’s a pretty broad list.  Are there any exceptions?”

“Great question.  The instructions for Form 8899 clarify that the following items are NOT considered ‘intellectual property’:

  1. Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
  2. A copyright held by a taxpayer:
  • Whose personal efforts created the property, or
  • In whose hands the basis of the property is determined, for purposes of determining gain from a sale or exchange, in whole or in part by reference to the basis of the property in the hands of a taxpayer whose personal efforts created the property.

 

RULES:                                                                        .

From Form 990 Instructions – Part V, Line 7g:

Line 7g. Form 8899, Notice of Income From Donated Intellectual Property, must be filed by certain organizations that received a charitable gift of qualified intellectual property that produces net income. The organization should check “Yes,” if it provided all required Forms 8899 for the year for net income produced by donated qualified intellectual property. Qualified intellectual property is any patent, copyright (other than certain self-created copyrights), trademark, trade name, trade secret, know-how, software (other than certain “canned” or “off-the-shelf” software or self-created software), or similar property, or applications or registrations of such property. If the organization didn’t receive a contribution of qualified intellectual property, leave line 7g blank.

 

BOTTOM LINE:

  • Form 990, Part V can be referred to as “All the questions the IRS is interested that don’t fit elsewhere on the form.”
  • Part V, Lines 7a – 7h are critical items to answer correctly:  Yes, No, or Blank!
  • The “definition” of intellectual is best noted in the instructions to Form 8899 – along with exceptions.
  • Note that if your institution has received a contribution of qualified intellectual property, you might also be required to report “Qualified donee income.”

 

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The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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