A proposal for an open source tax credit [LWN.net]

A proposal for an open source tax credit

Posted Mar 19, 2006 0:28 UTC (Sun) by mattdm (subscriber, #18) [Link]

How would one value that copyright?

A proposal for an open source tax credit

Posted Mar 19, 2006 0:50 UTC (Sun) by BrucePerens (subscriber, #2510) [Link]

Start with Wheeler's paper, section 2.3 on estimation models.

Thanks
Bruce

A proposal for an open source tax credit

Posted Mar 19, 2006 0:54 UTC (Sun) by mattdm (subscriber, #18) [Link]

Man, I sure wouldn't want to have to explain that to an IRS auditor. It seems like an interesting suggestion, but I think I'll let others try it first. :)

A proposal for an open source tax credit

Posted Mar 19, 2006 1:12 UTC (Sun) by BrucePerens (subscriber, #2510) [Link]

IRS gets estimated valuation on all manner of things that haven't been sold recently. Some of them have well-established models, some much less.

Bruce

A proposal for an open source tax credit

Posted Mar 19, 2006 20:22 UTC (Sun) by gtaylor6 (guest, #19812) [Link]

An interesting notion. I found a research paper for
donations of IP by individuals at the URL below. 2002
with some 2003 updates.

The answer appears to be "no", at least not since 1969's
Tax Reform Act defined the deduction for donated copyrights
to be the cost basis and not the FMV.

http://www.pgdc.com/pdf/It_Does_Not_Compute.pdf

Evidently there was as of 2003 half a move afoot to
allow software donations to be deducted under the patent
rules where applicable; at present the copyright rules
eliminate the deduction of patent FMV for many software
donations. Dunno what happened to that bill...

A proposal for an open source tax credit

Posted Mar 19, 2006 20:46 UTC (Sun) by BrucePerens (subscriber, #2510) [Link]

That's an excellent, authorative reference. Thanks for finding it. And it shows us what to work on.

Thanks

Bruce

A proposal for an open source tax credit

Posted Mar 20, 2006 11:08 UTC (Mon) by butlerm (subscriber, #13312) [Link]

I lost the long version of this...

The short version is, a change in policy to allow tax deductibility of contributions with no tax basis is not very likely for a variety of reasons - it would be susceptible to abuse in particular.

A proposal with a greater chance of success would to be to create tax credits for open source software development expenditures, to partially compensate companies funding it for their contributions.

There are tax credits for proprietary R&D already, open source software development ought to be given significantly preferred treatment.

A proposal for an open source tax credit

Posted Mar 20, 2006 23:36 UTC (Mon) by gtaylor6 (guest, #19812) [Link]

> deductibility of contributions with no tax basis
> [...] would be susceptible to abuse in particular.

Well, these things *do* have a tax basis; there are
expenses associated with the creation of "amateur"
GPL software. DNS registrations, ISP bills, some
computer hardware or advertising expenses, etc
probably all count. Unfortunately the basis cost
will be vastly less than the FMV for any software
costed in a way that excludes developer time.

Furthermore, you *can* donate "IP" excluding self
created copyrights, and get a greater-than-basis
deduction. See p526 page 9. Mind you the post-2004
rules (apparently introduced after the paper I posted
earlier) say that the deduction is the *lesser* of
basis or FMV. Since this basically eliminates the
possibility of deducting any meaningful FMV for
anything much, there is a new deduction mechanism
centered around Form 8899. Basically, the recipient
of your asset must report any income from the thing
you donated for the next 12 years, and you can deduct
a gradually declining portion of that for the period
covered, but only to the extent that it represents
value beyond the basis you already deducted. This
represents a servicable and undeniably "honest"
approximation to FMV of a patent/copyright/tmark/etc;
it is analagous to the new treatment for donated car
valuations, excepting of course that a donated car can
only produce income by being sold.

Unfortunately even if f8899 applied to self-created
software copyrights, the donation of DFSG-free
software would be unlikely to result in any income
as such for the donee. This should not be a
surprise; much of the "FMV" of a serious copyright
lies in the fact that the holder is usually the sole
source of usage rights for the work in question.
This is not true of most free software, ergo there
is limited monetary value for the copyright as such.
This is the fundamental error in the idea of using
DM's software value-o-meter to value free software
copyright. Free software licenses give away the
bulk of the rights in the copyright, rendering it
barely more valuable to the holder than to anyone
else. Precisely as RMS intended ;)

There is also the problem that the donee would need
to be carefully selected to avoid the issues that
come up when a nonprofit experiences unrelated and
taxable income. I'd bet that nonprofits actively
avoid small 8899 donations. The only way it would
actually work without pain is if the donee promptly
sells the copyright to someone else and reports to
you that sale income.

So, long story short, the current state of the regs
certainly doesn't provide any incentive for amateur
free software development, for charity or otherwise.
Assuming that this activity is considered socially
desirable* enough to warrant a tax incentive some
serious changes to the 1969 Act and and possibly the
2004 8899 regs would be on order.

Unfortunately one could not seriously advocate for
changes to 1969 et al without first understanding
the implications for the Mouse. I wouldn't even
know where to begin...

* FWIW, I don't think it is. The broad strokes that
would be painted by any such tax change would likely
encourage large numbers of people to write large
amounts of horrible software. Society already does
this quite well now!

A proposal for an open source tax credit

Posted Mar 21, 2006 0:07 UTC (Tue) by BrucePerens (subscriber, #2510) [Link]

The Mouse? They have guarded their own tax loopholes, it doesn't seem this would have to effect them. I was in on the colorization thing in the 80's. The purpose wasn't to make the film look better, it was that if we did new work on old pictures the schedule for depreciating them became more advantageous.

Bruce

A proposal for an open source tax credit

Posted Mar 21, 2006 1:38 UTC (Tue) by gtaylor6 (guest, #19812) [Link]

> The Mouse? [...] it doesn't seem this would have to effect them

Not the proposed 20% software basis ex-time deduction, certainly.

But any wider change to copyright might affect publisher behavior
directly, or even indirectly through some purturbation it triggers
in the accounting treatment of copyright assets. Changes to the
tax code are like changes to most complex software systems: at
best you can only move the bugs around :)

A proposal for an open source tax credit

Posted Mar 19, 2006 17:25 UTC (Sun) by zotz (guest, #26117) [Link]

[Believe it or not, there are problems in this world that do not have
to be addressed through the tax code!]

I agree 100%. However, until the powers that be seriously simplify the code, why shouldn't what's good for the goose be good for the gander?

Mind you, off the top of my head, I think the best thing the government could do for free software is to require that all software purchased by the government or receiving government funding be released under a GPL compatible copyleft licence.

all the best,

drew

Long overdue

Posted Mar 19, 2006 23:39 UTC (Sun) by man_ls (subscriber, #15091) [Link]

Yeah, that would be fantastic -- and also a quite logical thing for a government to do. I would bet governments get comprehensive specs to everything they buy; building plans, electrical wirings, electronic circuit specifications. Why not for software, why buy opaque boxes? How could government procurement procedures allow this for so long? It's a long overdue move.

And however when support for a open format for documents is required in a US state, they get into a big mess. It's incredibly blind.

Long overdue

Posted Mar 20, 2006 0:03 UTC (Mon) by vmole (subscriber, #111) [Link]

I would bet governments get comprehensive specs to everything they buy; building plans, electrical wirings, electronic circuit specifications.

Guess again.

After all, that would be government confiscation of valuable intellectual property - might as well be Communists! Never mind if it was developed on government funding -- i.e. your money and mine.

As an example, consider the uproar over voting machine software, and the objections of the companies that wrote it against letting anyone see it.

Long overdue

Posted Mar 20, 2006 9:52 UTC (Mon) by butlerm (subscriber, #13312) [Link]

The federal government (in the U.S.) does require source code to any critical software they buy. Of course even source code is of limited utility after a few years...

Long overdue

Posted Mar 20, 2006 10:59 UTC (Mon) by man_ls (subscriber, #15091) [Link]

If this source code is provided but cannot be disseminated then it is certainly of limited use. It is hard to imagine anything similar happening to e.g. government buildings -- that the government receives the blueprints but cannot provide them to other contractors.

A proposal for an open source tax credit

Posted Mar 19, 2006 19:51 UTC (Sun) by mmarq (guest, #2332) [Link]

A proposal for an open source tax credit "" The value of an individual's donated time would not qualify similar to the way charitable contributions are treated. However, out-of-pocket costs, such as fees for web hosting, the depreciated cost of capital ex-penses such as computers, travel to development-related conferences, and otherexpenses would qualify for a 20 percent refundable tax credit. ""

Great, truly great, only hope that identical measures can be put to effectiveness trough out the world.

As to the donated time, i belive it is practically impossible to quantify it in a positive way. Nevertheless i belive it could be possible, considering some increased adoption in world wide legislation in the sense of puting down exchange barriers, to create a non-for-profit mutual fund open to donations, collecting a very small fee, in the quantity of irrelevance to almost everybody even in poor countrys, and so being able to attract "hundreds of thousand" of potencial developers around the world, with the possibility of getting an award substantially larger than their fee.

With several considerations could the award structure be organized, but i belive merit, innovation, and economic situation of the origin country, should have special consideration, to a diversified multinational panel of voting judges. So possibly "several thounsands" of awards could distributed around the globe.

It would not be a wage, and it would not be a lottery, but it could be a very valuable incentive.