All of Me, Why Not Take All of Me

In Rev. Rul 2003-28, the Service considered three different factual scenarios involving the contribution of rights in a patent to a charitable organization. In only one instance was the contributor allowed a charitable deduction.

In the first situation described, the taxpayer contributed a non-exclusive license for the patent to a university, retaining the right to grant other licenses. The Service held that Section 170(f)(3) requires that the taxpayer contribute an undivided portion of its entire interest in the patent. The ruling equated the non-exclusive license with the rent-free lease and the partial interest in the film rights to a motion picture, both of which are discussed in the regulations under Section 170. The regulations make it clear that no charitable deduction is allowed under these circumstances.

The Service's analysis of the first set of facts makes it clear that there would be no charitable contribution if the donor had retained any substantial rights. Thus, a contribution of the patent rights for one geographic area would not give rise to a charitable deduction if the donor had retained the rights to license the patent in other geographic areas.

In the second factual scenario, the patent rights would revert to the donor if a particular named professor was no longer a member of the faculty at the donee institution. The remaining life of the patent was 15 years and the Service determined that the possibility of the professor's leaving the institution before the expiration of the 15 year period was not "so remote as to be negligible." The ruling held that a charitable deduction was not allowed under this set of circumstances because it violated the rule set forth in Treas. Reg. Section 1.170A-7(a)(3) that a charitable contribution is not allowed if the transfer may be defeated by the performance of some act or happening of some event.

In the third case, however, a charitable deduction was allowed. There, the transfer to the institution was conditioned only upon the donee institution not further transferring or licensing the patent for the first 3 years after the initial transfer. However, the ruling warned that the restriction would reduce the value of the charitable deduction.

Rev. Rul. 2003-28 makes it clear that in making a charitable deduction, the whole is indeed greater than the sum of its parts.