COMPANIES in the US are about to be stung for hundreds of millions of dollars as a patent-related tax dodge comes in for unprecedented scrutiny from the Internal Revenue Service.
Under US law, a firm that chooses not to develop a technology it has patented can donate the patent to universities or charities that might have a use for it. The firm assigns a dollar value to the patent 鈥� an amount deductible from its taxable income as a charitable donation. But now the IRS wants to recoup possibly hundreds of millions of dollars from firms who have been overstating the value of such donated patents.
The ease with which taxable income can be reduced in this way has prompted an 鈥渋ncreased frequency鈥� of such claims, the IRS says. Despite having decided in many cases that certain technologies are not worth pursuing, some firms arrange for patent valuations that vastly inflate their worth. One reason such valuations can be excessive is that they often ignore the existence of related inventions, so-called 鈥減rior art鈥�, which is often overlooked by examiners when a patent is granted. Prior art can easily slash a patent鈥檚 value 鈥� or even invalidate it.
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An IRS spokesman says donated patents will now be scrutinised more closely. 鈥淲e are working to ensure our agents have a heightened awareness of the issues surrounding valuation of patents,鈥� he says.