more on open source tax credit

[David Farber <dave () farber net>]

Begin forwarded message:

From: Russ Nelson <nelson () crynwr com>
Date: March 20, 2006 12:31:12 AM EST
To: dave () farber net
Cc: Dana Blankenhorn <dana () a-clue com>, Carl Malamud <carl () media org>
Subject: Re: [IP] more on open source tax credit

David Farber writes:
> The idea is that corporations can write-off their work developing
> software in many ways, but individuals can't. And they should.

I looked into this issue in my role as the executive director of the
Public Software Fund[1].  If you own copyright on a work, and you  
donate[2]
that work to a 501(c)(3), you can deduct the fair market value of that
work.  No changes are needed to tax law.

The difficulty here is that you need to determine the fair market
value.  You can pick a number from the air if you want.  Or you can
pay a professional for a valuation of the work that will stand up in
tax court.  There are people who will do this for a percentage of the
value of the work.  I expect, though, that they would be grumpy about
valuing something worth less than, say, $100.

So what would a contribution to an existing open source project be
worth?

Some Open Source licenses[3] require that any change you actually use,
you must publish as open source software.  Other Open Source licenses
require that you make freely copyable and include source of any code
you publish.  Yet other Open Source licenses allow you to distribute
derived works under any license you want.  How to value contributions?
It seems to me arguable[4] that you can deduct whatever you could sell
the first copy for.  When Cygnus Software was an independent company,
they would sell the first copy of a gcc port for six or seven figures.
A comparable price would be the price of full ownership of any
comparable piece of software

A less reliable valuation would be the salary of someone paid to do a
comparable work-for-hire.  Since the employer owns the copyright (for
work done in the USA) absent any agreement, the employer is in effect
buying the copyright.  It's less reliable because the employer is
buying the copyright in advance.  They're taking a risk that the
employee will write junk, and hoping they'll write a masterpiece.
That's where the unreliability of this valuation comes from.  Makes
any one valuation less arguably correct.

Does that get anybody to thinking about filing revised federal income
taxes for the past three years based on the value of software whose
copyright you assigned?[5]


[1] http://publicsoftwarefund.org
[2] To be legally donated, the copyright must be assigned, in writing.
[3] By which I mean OSI Approved Open Source licenses.
[4] The IRS will not impose a penalty if you can make a reasonable
    argument for a deduction even if the deduction is disallowed on  
audit.
    They expect you to deduct aggressively.  You would then have to pay
    interest and the avoided taxes.
[5] You can write off up to half your income, but only half your
    income.  Don't think you'll get away without paying any taxes.

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