Intangibles are no longer undetectable, the taxman says

Date:  Tue, 2004-06-01

Excerpted from: Adrian Preston. June/July 2004 “Intangibles are no longer undetectable, the taxman says.” Intellectual Asset Management pp 27-28 One of the major problems associated with the donation of patents is valuation. Valuing IP is, of course, a difficult and complex business. This perhaps explains why in the past the sheer complexity of the issues at stake has deterred IRS staff from asking too many questions and treating the patent donations scheme with what has been described as benign neglect. That attitude is changing fast. In an address to the Senate Finance Committee’s Roundtable on Patent Donations, David Martin, CEO of M·CAM, a leading IP verification business that has been working with the IRS to review patent donations cases said: “The IRS has struggled to make critical advances in an effort to enforce the quite adequate laws that are currently on the books. Though intimidated by those who have their self interests to protect in the accounting and legal communities, the IRS is attempting to educate its professionals on what questions to ask when reviewing patent-related transactions. Considering the revenue requirements of our government, it is imperative that revenue collection be facilitated immediately. The era when intangible was synonymous with undetectable is over.” Those words promise an IRS stance that is only likely to get tougher. Increased scrutiny of donations is not simply likely, it is inevitable, and businesses that are considering or have in the past made donations for which they received a tax benefit need to consider their compliance obligations urgently. The IRS has indicated that it is not simply the corporate donors themselves that could be liable to penalties if, on investigation, the value placed on a patent and the tax deduction claimed turns out to be inflated. The advisers and appraisers who have helped put the donation together could also find themselves facing punitive action.