Federal Tax

Intellectual Property: Acquisition, Development and Ownership (Portfolio 557)

  • This Portfolio discusses the tax implications of developing and licensing patents and know-how.


The Tax Management Portfolio, Intellectual Property: Acquisition, Development and Ownership, No. 557 Portfolio describes the rules governing U.S. federal income tax treatment of the costs of developing, acquiring and owning patents, copyrights, know-how and trade secrets (referred to generically as “know-how”), and trademarks and trade names, along with a fifth type of intellectual property, computer software, that can be protected as all or a combination of a patent, know-how and copyright.

The first section of this Portfolio contains a description of the foregoing types of intellectual property, including the basis on which each enjoys protection under applicable non-tax law. The second section of the Portfolio considers the taxation of technological research and development expenditures, which enjoy special treatment under the Code. The third and final section of the portfolio begins with a description of the statutory framework for the taxation of other development costs as well as acquisition and ownership costs and then considers how this framework applies to each of the foregoing types of intellectual property. Among the sections of the Code discussed in detail in this portfolio are §§41 (relating to the research credit), 162 (relating to deduction of ordinary and necessary business expenses), 165 (relating to abandonment and worthlessness losses), 167 (relating to depreciation), 174 (relating to research and development expenditures), 183 (relating to hobby losses), 197 (relating to amortization) , 212 (relating to deduction of expenses incurred in for-profit activities), 263 (relating to capitalization), 263A (relating to capitalization of certain inventory costs), and 1253 (relating to trademark and trade name payments).

Table of Contents

I. Introduction
II. Research and Experimental Expenditures
III. Patents
IV. Know How
V. Foreign Related Transfers
VI. Ancillary Considerations

Harsha Reddy
Pillsbury Winthrop Shaw Pittman LLP
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