Form 8899 and Donated Intellectual Property

Let’s face it.  It can be a challenge for many institutions to ensure that the Finance Team is notified regarding every single in-kind or non-cash donation.  At your school, is there a chance that someone might donate some type of “know how” and that it would not be communicated fully nor recorded at fair market value?

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?”

Many folks in the Finance Departments of Bible Colleges and Seminaries aren’t quite sure what intellectual property is much less anything about Form 8899.  Note that failure to file Form 8899 in a complete, accurate, and timely manner could result in penalties.  To compound matters, there is not an entry in the Form 990 Glossary (which can be a great resource) regarding “intellectual property.”

Even though the Form 990 Glossary does not contain a definition of “intellectual property,” the Form 990 instructions do provide some guidance (see page 16 of the 2021 990 instructions).  There, we see a listing 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

Now, that is a pretty broad – and not necessarily crystal clear - listing.  I’d especially like to know more about “similar property.”  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.

When we dig a little deeper into the 990 instructions for Part V, we get a little bit clearer picture…

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.

 So, consider having a conversation with your management team – especially the development crowd – about making sure the Finance/Accounting Team is aware if/when a contribution of “intellectual property” comes to your institution.