Donation Condioned On Transfer Of Intellectual Property

[Towley]

Is its permissible for a 501 c 3 to accept a donation with a requirement to transfer to the donors the ownership of intellectual property created by a third party during the ongoing activities of the organization?   

I am on the board of a 501 c 3 community arts organization.  We have been offered a donation of approximately $2,000 to support a songwriting contest.  In return for their donation the donors REQUIRE that the ownership of the winning song be transferred to them.  The 501 c 3 would run the songwriting contest and, as part of the rules, the winning songwriter would be required to transfer ownership of his or her song to the donors.  The 501 c 3 would never own the song.  It would serve only as the agent for this transfer of song ownership from the winner to the donor.  The donors have presented the board of the 501 c 3 with legal language to affect the transfer of the copyright and all rights to the winning song to the donors.

[Cooey]

First, let me inform you that the IRS does not refer to such a payment as a donation.  

One of the basic principles of Rev. Rul. 67-246 is that to be

deductible as a charitable contribution, a payment to a charity

must be a gift, that is, a voluntary transfer of money or other

property that is made with no expectation of procuring a

financial benefit commensurate with the amount of the transfer.

Where consideration in the form of substantial benefits is

received in connection with payments by patrons of fund-raising

activities, there is a presumption that the payments are not

gifts, and that the total amount paid represents the fair value

of the benefits received in return or in legal terms - a quid pro

quo.

www.irs.gov/pub/irs-tege/eotopick90.pdf on page 2

That being said, your organization would need to decide whether the activity is directly related to your exempt purposes, or not. IRS Publication 598 "Tax on Unrelated Business Income of Exempt

Organizations" at

www.irs.gov/pub/irs-pdf/p598.pdf

explains that,  if products or services are not directly related to the

charitable, educational, religious or other purpose or function

constituting the basis for its exemption(other than for

production of income), then the activities are generally taxable to the organization.

Even though it may be taxable, your organization is allowed to engage in that relatively small unrelated business activity(I am assuming your gross income is above $20,000 per year).   I am also assuming that the work that your 501(c)(3) organization does for that pro-profit entity for the  $2000 has a reasonable value of much less than $2000.  If any of my assumptions are incorrect, let me know and then I will reply further.  

Thank you.

Harvey Mechanic, Attorney at Law - [email protected]