[ale] IRS, Art, RIAA & MPAA

[Steve Hamlin]

> James P. Kinney III wrote:
> > When an artist donates a piece of art they created to a charitable
> > organization to be used for a fund raiser, the IRS will only allow the
> > artist to deduct the cost of the physical materials used in that piece.
> > So a painter can only write off the actual cost of the paint, canvas and
> > frame. They can't write off an estimated street value of the work. Nor
> > can they write off an hourly rate for their time. The IRS has denied
> > they the ability to deduct the assigned value of the Intellectual
> > Property used to create that work of art.
> >
> > So how does BSA, RIAA, & MPAA get away with claiming damages of full
> > retail value instead the cost of the bulk CD/DVD, box and label?

<sorry for the lack of 'reply-to' headers for threading - I deleted the
thread before I responded>

2 different questions.  One is value for IRS charitable deductions, the
other is value in a lawsuit about IP infringement.  They are not the same
thing.

The BSA, RIAA etc is claiming a tort against the infringing entity, and
essentially saying "you needed to pay me $X,000 for a license to use this
IP, and you didn't, so you owe me $X,000"  If recovered, this is revenue to
the company, just like a sale.  Expenses for that revenue would be lawyers
fees, with no associated cost of goods sold.

Not sure how / if the record labels record deductions for IP-infringement
(non-revenue = causalty losses?).  I doubt they do - it'd be hard to prove
to the IRS, regardless of what humbers the BSA spouts off about as "piracy
losses".

The IRS has particular rules in place for exactly what is a charitable
deduction.  There is a difference in the tax code treatment of business
expenses and charitable expenses (both deducted against revenues to come up
with taxable net income).

Reason:  likelihood of abuse.  If the IRS allowed any artist to deduct the
"estimated street value of the work", then the Service would quickly start
seeing huge charitable dedcutions for art 'donated' to a charity.  Same for
donated time (programming or otherwise) - what is the appropriate hourly
rate?  Hmm, I think I'm worth $500 an hour, so my volunteering on Saturday
monring is worth a $2000 deduction.  Excellent !!

If the artist is a business, and the artist's work was sold, or stolen, or
lost in a fire, then likely the expense (cost of goods sold, or casualty
loss) allowed would be more than just 'materials' - it would be something
closer to 'cost of creation with allocated overhead'.  FMV of inventory -
you just have to support that figure.

It might not make sense, and there has been some talk about changing the
charitable contribution rules to allow for the obvious cases where the thing
donated clearly had some value beyond materials.

Not sure, but there might be ways to use a pass-through entity to get some
sort of stepped-up basis, i.e. donate to one entity  (A), some event happens
that allows the donation to be valued at the market value, and then donated
to a 2nd charity (B) at the higer value, but now that I think about it, the
2nd deduction (due to A donating to B) would only be good as a deduciton for
A, which is a NFP 501(c)(3) in the first place, and pays no or minimal tax
anyways, so what's the point.........
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