Contents

LEGISLATIVE UPDATEA person who makes this type of gift⎯a qualified intellectual property contribution(IRC § 170(m)(8))⎯is provided a charitable contribution deduction (subjectto the annual percentage limitations) equal to a percentage of net incomethat flows to the charitable donee as the consequence of the gift of the property(IRC § 170(m)(1)). This income is termed qualified donee income (IRC § 170(m)(3)).Thus, a portion of qualified donee income is allocated to a tax year of thedonor (IRC § 170(m)(4)), although this income allocation process is inapplicableto income received or accrued to the donee after 10 years from the date of the gift(IRC § 170(m)(5)) and the process is inapplicable to donee income received afterthe expiration of the legal life of the property (IRC § 170(m)(6)).The donee income that materializes into a charitable deduction is determinedby the applicable percentage, which is a sliding-scale percentage determined by thefollowing table that appears in the Internal Revenue Code (IRC § 170(m)(7)):Donor's Tax Year Applicable Percentage1st 1002nd 1003rd 904th 805th 706th 607th 508th 409th 3010th 2011th 1012th 10Thus, if, following a qualified intellectual property contribution, the charitabledonee receives qualified donee income in the year following the gift, that amountbecomes, in full, a charitable contribution deduction (subject to the general limitations).If such income is received by the charitable donee eight years after the gift,the donor receives a charitable deduction equal to 40 percent of the qualifieddonee income. As this table indicates, the opportunity for a qualified intellectualproperty deduction arising out of a qualified intellectual property contributionterminates after 12 years from the date of the gift (IRC § 170(m)(10)(C)).The reporting requirements rules, concerning certain dispositions of contributedproperty (IRC § 6050L), have been amended to encompass qualified intellectualproperty contributions. A donee of such a contribution is required to make areturn, with respect to each applicable tax year of the donee, showing (1) thename, address, and tax identification number of the donor; (2) a description of theintellectual property contributed; (3) the date of the contribution; and (4) theamount of net income of the donee for the tax year which is properly electable tothe qualified intellectual property. A copy of this return must be timely furnishedto the donor. xx