THE INCOME AND OTHER FEDERAL TAXES AS AFFECTED BY PATENTS, TRADE-MARKS, COPYRIGHTS AND GOODWILL By REX FRYE, L. L.. B., M. P.L. Of the District of Columbia and Detroit Federal Bars United States Patent Office Preface. A few years ago a request was made upon the author, then in charge of the Patent Department of the Toledo Scale Company, that he supply the Treasurer of that company with the necessary data to support a change in valuation of its several hundred patents upon the books of the Company. The object was to correctly set out the value of these patents as of March 1, 1913, and afford a basis for annual depreciation in accordance with recent Income Tax Laws. Frankly, the author was at a loss as to how to proceed. The Income Tax Laws were not then so generally understood and the Treasury Department officials had not published many decisions that were definitely informative. Long conferences were held with the Company's treasurer and auditor, and it was decided that we would consult eminent patent counsel. Several letters were forwarded to different firms of patent lawyers, only to meet with the substantially unanimous response that they knew of no definite rules that could be applied with safety, though several suggested methods that they thought might be helpful. Certified public accountants were then interrogated, but they were equally indefinite in their replies. Several suggestions were made by them, differing in some essentials from the suggestions offered by the patent lawyers, but, while general information was abundant, no specific data was furnished. The result was that the desired revalua tion had to be postponed. The incident, however, spurred the author to an endeavor to learn more about the Income Tax Laws and their application to patents and like intangible subject matter. This was accentuated when a little later the question arose as to proper disposition on the Company's books of an award made in a patent infringement suit. The specific question was: "In what year the amount of the award should be considered as affecting the company's income?" Again the author could not find authoritative support for a decision. The opinions of several patent lawyers and accountants were again at variance, and not until a direct appeal had been made to the Commissioner of Internal Revenue was the question finally decided. The author then proceeded to collect all data he could find relative to the application of the Income Tax Laws and other Federal Tax Laws insofar as they related to patents, trade-marks, copyrights, good will, and the like. It became almost a hobby, and as the Treasury Department officials gradually worked out solutions of the various problems presented to them, the subject became increasingly interesting and the notes more voluminous. On several occasions these notes were of some help to the author's friends, both among inventors and patent lawyers, and almost invariably requests were received for permission to copy them. The dissemination of such copies, however, seemed but to increase the number of the requests. The present booklet has been compiled as a result. It is a digest from the author's notes, and sets out under general headings the Treasury Department's rulings upon various phases of finance relating to patents, trade-marks, and the like, such as the method of determining the cost of obtaining them or operating under them, or calculating returns received from them. These general headings have often been subdivided in the light of the decisions and established rulings of the Treasury Department officials. The booklet is not intended as a complete presentation of the subject. The ramifications of the subject matter are so varied and the enactments of the various laws so recent that the formative stage has not been passed. The notes have merely been compiled to show the development of the subject to date, and it is hoped that they will prove useful in saving others the necessity of sifting through all the decisions to garner those relating to patents, trade-marks, and the like. Acknowledgement is made of the information given and help afforded the author by Mr. Wm. A. Zolg, Treasurer of the Toledo Scale Company; Mr. W. M. Randolph, its Auditor; Mr. C. O. Marshall, of its Patent Department, and Mr. Chas. A. Stockman, of Washington, D. C. The several officials and their assistants in the Income Tax Unit of the Treasury Department have also been uniformly courteous in their replies to the author's queries, and did all they could to help without violating the secrecy that must be accorded tax returns received by them in their official capacities. REX FRYE, Ford Bldg., Detroit, Mich. January 3, 1921. |