Section 495 of S 1637 (108th Congress), the "Jumpstart Our Business Strength (JOBS) Act", as reported by the Senate Finance Committee.
Re: Limitations on Deductions for Contributions of Intellectual Property.
SEC. 495. LIMITATIONS ON DEDUCTION FOR CHARITABLE CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY.
(a) DEDUCTION ALLOWED ONLY TO THE EXTENT OF BASIS- Section 170(e)(1)(B) (relating to certain contributions of ordinary income and capital gain property) is amended by striking `or' at the end of clause (i), by adding `or' at the end of clause (ii), and by inserting after clause (ii) the following new clause:
`(iii) of any patent, copyright, trademark, trade name, trade secret, know-how, software, or similar property, or applications or registrations of such property,'.
(b) TREATMENT OF CONTRIBUTIONS WHERE DONOR RECEIVES INTEREST- Section 170(e) is amended by adding at the end the following new paragraph:
`(7) SPECIAL RULES FOR CONTRIBUTIONS OF PATENTS AND SIMILAR PROPERTY WHERE DONOR RECEIVES INTEREST-
`(A) DISALLOWANCE OF DEDUCTION- No deduction shall be allowed under this section with respect to a contribution of property described in paragraph (1)(B)(iii) if the taxpayer after the contribution has any interest in the property other than a qualified interest.
`(B) CONTRIBUTIONS WITH QUALIFIED INTEREST- If a taxpayer after a contribution of property described in paragraph (1)(B)(iii) has a qualified interest in the property--
`(i) any payment pursuant to the qualified interest shall be treated as ordinary income and shall be includible in gross income of the taxpayer for the taxable year in which the payment is received by the taxpayer, and
`(ii) subsection (f)(3) and section 1011(b) shall not apply to the transfer of the property from the taxpayer to the donee.
`(C) QUALIFIED INTEREST- For purposes of this paragraph--
`(i) IN GENERAL- The term `qualified interest' means, with respect to any taxpayer, a right to receive from the donee a percentage (not greater than 50 percent) of any royalty payment received by the donee with respect to property described in paragraph (1)(B)(iii) (other than copyrights which are described in section 1221(a)(3) or 1231(b)(1)(C)) contributed by the taxpayer to the donee.
`(ii) SECRETARIAL AUTHORITY-
`(I) IN GENERAL- Except as provided in subclause (II), the Secretary may by regulation or other administrative guidance treat as a qualified interest the right to receive other payments from the donee, but only if the donee does not possess a right to receive any payment (whether royalties or otherwise) from a third party with respect to the contributed property.
`(II) EXCEPTIONS- The Secretary may not treat as a qualified interest the right to receive any payment which provides a benefit to the donor which is greater than the benefit retained by the donee or the right to receive any portion of the proceeds from the sale of the property contributed.
`(iii) LIMITATION- An interest shall be treated as a qualified interest under this subparagraph only if the taxpayer has no right to receive any payment described in clause (i) or (ii)(I) after the earlier of the date on which the legal life of the contributed property expires or the date which is 20 years after the date of the contribution.'.
(c) REPORTING REQUIREMENTS-
(1) IN GENERAL- Section 6050L(a) (relating to returns regarding certain dispositions of donated property) is amended--
(A) by striking `If' and inserting:
`(1) DISPOSITIONS OF DONATED PROPERTY- If',
(B) by redesignating paragraphs (1) through (5) as subparagraphs (A) through (E), respectively, and
(C) by adding at the end the following new paragraph:
`(2) PAYMENTS OF QUALIFIED INTERESTS- Each donee of property described in section 170(e)(1)(B)(iii) which makes a payment to a donor pursuant to a qualified interest (as defined in section 170(e)(7)) during any calendar year shall make a return (in accordance with forms and regulations prescribed by the Secretary) showing--
`(A) the name, address, and TIN of the payor and the payee with respect to such a payment,
`(B) a description, and date of contribution, of the property to which the qualified interest relates,
`(C) the dates and amounts of any royalty payments received by the donee with respect to such property,
`(D) the date and the amount of the payment pursuant to the qualified interest, and
`(E) a description of the terms of the qualified interest.'.
(2) CONFORMING AMENDMENTS-
(A) The heading for section 6050L is amended by striking `certain dispositions of'.
(B) The item relating to section 6050L in the table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking `certain dispositions of'.
(d) ANTI-ABUSE RULES- The Secretary of the Treasury may prescribe such regulations or other administrative guidance as may be necessary or appropriate to prevent the avoidance of the purposes of section 170(e)(1)(B)(iii) of the Internal Revenue Code of 1986 (as added by subsection (a)), including preventing--
(1) the circumvention of the reduction of the charitable deduction by embedding or bundling the patent or similar property as part of a charitable contribution of property that includes the patent or similar property,
(2) the manipulation of the basis of the property to increase the amount of the charitable deduction through the use of related persons, pass-thru entities, or other intermediaries, or through the use of any provision of law or regulation (including the consolidated return regulations), and
(3) a donor from changing the form of the patent or similar property to property of a form for which different deduction rules would apply.
(e) EFFECTIVE DATE- The amendments made by this section shall apply to
contributions made after October 1, 2003.