Rev. Rul. 58-260
SECTION 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS
January, 1958
The fair market value of an undivided present interest in a patent, which is contributed by the owner of the patent to an organization described in section 170(c) of the Internal Revenue Code of 1954, constitutes an allowable deduction as a charitable contribution, to the extent provided in section 170, in the taxable year in which such property is contributed.
Advice has been requested with respect to the treatment for Federal income tax purposes of the transfer, under the circumstances described below, of an undivided one-fourth present interest in a patent by the owner of the patent to an organization described in section 170(c) of the Internal Revenue Code of 1954.
A, the inventor and owner of a patented process, granted to M Corporation a nonexclusive license to practice the process and sell the products of such process. A and his wife own all of the outstanding capital stock of M Corporation. A is also a trustee of an organization described in section 170(c) of the Code. A contributed to that organization an undivided one-fourth present interest in his patent.
Since the transfer of the undivided present interest in the patent is a transfer of a substantial interest in property, any royalties attributable to that interest in the patent, which are earned subsequent to the transfer and paid to the organization as a result of such transfer, constitute income to the organization and not to A.
Section 170 of the Internal Revenue Code of 1954 provides in part as follows:
(a) ALLOWANCE OF DEDUCTION. -
(1) GENERAL RULE. - There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary or his delegate.
Section 1.170-1(c) of the Income Tax Regulations provides that if a contribution is made in property other than money, the amount of the deduction is determined by the fair market value of the property at the time of the contribution.
Accordingly, it is held that a deduction will be allowable to A, to the extent provided by section 170 of the Code, for his contribution of the undivided one-fourth present interest in the patent, and such deduction will be allowable for the taxable year in which the property is contributed. The amount of the allowable deduction will be the fair market value of the patent interest transferred, such fair market value being a question of fact to be determined upon the examination of A' s income tax return for the year in which the contribution is claimed as a deduction.
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