A proposal for an open source tax credit

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

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!