## Facts

- The IRS addressed whether certain transfers of patent interests to a university qualifying under I.R.C. § 170(c) produce a charitable-contribution deduction under I.R.C. § 170(a), considering § 170(f)(3) (partial-interest rule) and related regulations.
- Situation 1: Taxpayer X granted the university a license to use a patent but retained the right to license the patent to others.
- Situation 2: Taxpayer Y transferred a patent to the university subject to a condition subsequent: if a specific faculty member ceased employment before the patent expired, the patent would revert to Y; at the time of transfer, that possibility was not so remote as to be negligible.
- Situation 3: Taxpayer Z transferred all interests in a patent to the university, but the university agreed not to sell or license the patent for three years; the restriction provided no benefit to Z and the patent could not revert to Z.

## Issues

1. Whether a contribution of a patent license is deductible under § 170(a) when the donor retains any substantial right in the patent.
2. Whether a contribution of a patent subject to a conditional reversion is deductible under § 170(a) when the possibility of reversion is not so remote as to be negligible.
3. Whether a contribution of a patent subject to a temporary restriction on the charity’s ability to sell or license is deductible under § 170(a) when the restriction benefits neither the donor nor creates a reversion.

## Decision

- Situation 1: No deduction; the contribution was a nondeductible partial interest because X retained substantial rights in the patent.
- Situation 2: No deduction; the contribution was a conditional gift that could be defeated by a non-negligible possibility of reversion.
- Situation 3: Deduction allowed; Z transferred the entire interest, and the non-donor-benefiting restriction on disposition did not create a retained interest or reversion (subject to general charitable-contribution limitations, including valuation rules).

## Legal Principles

- I.R.C. § 170(f)(3)(A) generally disallows a charitable-contribution deduction for a transfer of less than the taxpayer’s entire interest in property, absent an applicable statutory exception.
- A transfer of only a license to use a patent, while the donor retains substantial exploitation rights (such as licensing to others), is a contribution of less than the donor’s entire interest and is generally nondeductible.
- Under Treas. Reg. § 1.170A-1(e), a donation subject to a condition that may defeat the transfer is not deductible if, at the time of the gift, the possibility that the charitable transfer will be defeated is not so remote as to be negligible.
- A full transfer of all the donor’s patent rights can remain deductible despite a temporary restriction on the donee’s ability to sell or license the patent when (i) the restriction provides no benefit to the donor and (ii) no reversion to the donor can occur.

## Conclusion

The IRS distinguished among (1) nondeductible partial-interest transfers of patent rights (licenses with retained substantial rights), (2) nondeductible conditional transfers with a non-negligible chance of reversion, and (3) deductible full patent transfers burdened only by a time-limited, non-donor-benefiting restriction that does not permit reversion.


Rev. Rul. 2003-28, 2003-11 I.R.B. 594 (2003)