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Intellectual Property And Estate Taxes

Sep 4, 2007
Nowadays many people have their wealth in both tangible and intangible assets. These intangible assets are also known as intellectual property. It includes patents, copyrights, trademarks and even trade secrets. Many a times the value people are in possession of thus is much higher than the physical assets.

The commercialization and widespread use of the Internet provides everyone the chance to create intellectual property. This is no longer restricted to the large Multi National Corporations or the affluent few. Everyone has the right and the capability to develop such property with the help of copyrights, trademarks or inventions that can be patented. Although the intellectual property grows as a wealth-creating tool, it is added to your estate taxes. You will also be faced with the task of determining the value of this property so that it can be added to your estate to calculate the taxes.

A person's intellectual property, especially copyrights, make a lot of difference while estimating the estate taxes. It is necessary to know the value of all the assets including the intellectual property to be able to find out the value of the estate. When calculating the value of the gross estate, it will also include retirement accounts, joint property etc. As of now, the maximum limit up to which the estate tax is exempt is $2 million. In 2009, this limit is said to be increased to a sum of $3.5 million.

The valuation of the intellectual property is based on the fair market value of the property on the day of the person's death. Different intellectual properties like copyrights, patents etc use different methods to decide the market value of the property. On the basis of these findings, the value of the intellectual property is added to the gross estate. The valuation analysis is subjective and so the ideal method to choose is the one that will give you the lowest value. Although this may not be the best method when valuation is done for other purposes, but it is highly recommended when the main objective is to calculate your tax liability.

Many a times the value of the intellectual property will be higher than the value of the liquid cash or assets that are available in hand. This means that you will not have sufficient cash to pay the taxes. If and when you are in such a situation, then you will be required to sell some part of your estate to meet the expenses. You also have the alternative to utilize the tax payment deferment that the Internal Revenue Code(IRS) allows the taxpayers. Code 6161 of the IRS allows a deferment of estate taxes for up to ten years as long as a reasonable cause is provided by you.

One of the causes that the IRS considers reasonable is proof showing that the taxes cannot be paid due to the illiquid intellectual assets that encompass your estate. You are given time to consider the other options available to you to make the payments and ensure that you do not take some hasty decision like selling property. Nevertheless, you will be entitled to pay interest on the differed payment.
About the Author
Sacramento CPA Firm Murray and Young offer Tax Representation by a former IRS auditor. For useful articles and tips by Sacramento Estate Tax Planners, please visit our website at http://www.april15.com.
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