Intellectual Property Monetization And Tax Efficiency

1. Overview: The Treasury's Take

Developing intellectual property requires both skilled labor and large amounts of capital. Recouping the developer's initial investment and earning profits typically requires monetizing the assets by either sale of license. In addition to general business concerns like asset and market share protection, developers should plan for the tax¹ consequences of their monetization transactions because, at its core, tax planning is cash planning. Legitimate federal income tax planning under the Code usually² involves two levers. The first lever is structuring a transaction to achieve a specific character of gain or loss. Second, thoughtful planners might utilize techniques to accelerate or defer a taxpayer's recognition of gain or loss.³ Courts have long recognized the application of careful rulesbased tax planning: