Religious Organizations and Intellectual Property Protection

Transcription

1 Religious Organizations and Intellectual Property Protection Tim Murphy, CPA Frank Sommerville, JD, CPA Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. 1

2 Housekeeping If you are experiencing technical difficulties, please dial: Q&A session will be held at the end of the presentation. Your questions can be submitted via the Questions Function at any time during the presentation. The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days. For future webinar invitations, subscribe at CLAconnect.com/subscribe. Please complete our online survey. 2

3 About CliftonLarsonAllen A professional services firm with three distinct business lines Wealth Advisory Outsourcing Audit, Tax, and Consulting More than 5,000 employees Offices coast to coast Over 60 years of experience serving more than 6,000 nonprofit clients Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC. 3

4 Speaker Introductions Frank Sommerville, JD, CPA Shareholder in the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C. in Houston and Dallas, Texas Handles and assists with a broad range of legal cases encompassing nonprofit and religious organizations Member of the American Bar Association, Board Certified in Tax Law by the Texas Board of Legal Specialization and holds a license as a Certified Public Accountant 4

5 Learning Objectives At the end of this session, you will be able to: Create policies and procedures for identifying, using, and safeguarding copyrightable assets Identify and account for the copyrightable assets owned by your organization Understand the tax pitfalls of allowing employees to create copyrightable works using your organization s resources 5

6 What is Intellectual Property (IP)? Umbrella term for subject matter that is a product of the mind or intellect. Analogous to physical property. Includes certain names, written and recorded media, and inventions. Protected by the United States Copyright Act. 6

7 Creation of Intellectual Property and General Rule of Ownership The general rule of ownership holds that whoever creates the property owns the property unless the Work Made for Hire doctrine applies. In the world of nonprofits and churches, the most common areas affected are: Writing a sermon or Bible study Writing a policy or manual Writing a PowerPoint Writing a tune or a song Writing a jingle or other marketing material Writing a book or article Must be published to a third party to be protected. 7

8 What is the Work Made for Hire Doctrine? An employer will own any and all intellectual property created by an employee within the scope and course of the employee s work duties. Factors indicating the made for hire doctrine will prevail: The employer provides assets used in creating IP; i.e., staff, supplies, computers, facilities, etc. Intellectual property is made at the express request of the employer or as a normal part of the worker s duties for the employer. The employer is compensating the worker for the creation of IP. 8

9 Can the Work Made for Hire Doctrine Be Changed? The employer and the worker may change the doctrine by entering into a written contract, signed by both, before creation of IP. Intellectual property also may be created outside the scope of the worker s duties and without the employer s assets. In such cases, the IP will not be subject to the doctrine. 9

10 Joint Ownership of Intellectual Property Yes, it is possible to create a joint ownership of intellectual property. Costs and ownership must go together. Without a written agreement, all owners are equal. 10

11 Copyright Infringement The use of another s IP without a license from the owner. Fair-use provisions a facts-and-circumstances test that varies from IP to IP. Common infringement traps: TV shows Movies Articles and pictures from the internet Commercials Rebroadcasting of church services or events Photocopying of music 11

12 How Do the Tax Rules Affect the Creation of Intellectual Property? Use of assets and reimbursements for expenses used in creating IP that is owned by individuals, results in private benefit for those who are not leaders and inurement of benefit for leaders. Section 501(c)(3) provisions state that private benefit cannot be substantial and inurement of benefit to insiders cannot exist on any level. Transactions may be considered as excess benefit transactions and subject to intermediate sanctions up to 225%. Written contracts and licenses for the creation and the use of the IP can clarify and address these issues before issues arise. 12

13 How to Decide Who Owns Intellectual Property the Employee or the Nonprofit? Default rule without a contract if created by an employee performing job duties and responsibilities, the nonprofit owns the IP. If the employee is using the nonprofit s assets and the nonprofit is using the product, then the nonprofit is more than likely the owner. Avoid the default rule a written contract specifically vests ownership of the IP and should address all the related rules and all the related risks, especially the use of the nonprofit s assets. 13

14 How to Transfer Intellectual Property to Employee Determine fair market value (FMV) of the IP by independent appraisal. Employee must pay income tax on FMV of the IP or pay the FMV of the IP to the nonprofit. Be aware of excessive compensation and intermediate sanctions when dealing with leaders of the nonprofit. Individual must pay the nonprofit FMV for the use of any assets of the nonprofit, such as recording equipment, computers, software, and employees time. 14

15 Accounting for Intellectual Property While perhaps an unseen asset, IP is still an asset of the nonprofit. All costs may not be captured, but it is important to capture direct costs associated with IP, as well as some indirect costs, for any/all of these reasons: Ability to know and realize the cost of creating the IP for internal planning purposes. Ability to amortize the value of the IP against any potential streams of income associated with it. Ability to determine pricing information for future sales. Ability to understand the investment in the event of a potential sale to either an insider or to an outside third party. 15

16 Questions? Frank Sommerville, JD, CPA Weycer, Kaplan, Pulaski & Zuber, P.C Matlock Road, Suite 201 Arlington, TX (817) Tim Murphy CliftonLarsonAllen To learn more about our upcoming nonprofit events or subscribe to our industry specific newsletter, please visit CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect 16