8153 / What special tax rules may apply to copyrights?

With regard to becoming “property,” there is only one important stage in the development of a copyright, namely the point in time when the work is fixed in a tangible form. Prior to that point in time, the idea is not property and is not protectable under the federal copyright law. Upon its creation, the copyright is a Section 197 intangible, but not an amortizable Section 197 intangible.

If a copyright is sold with a business, it is an amortizable Section 197 intangible and its purchase costs are amortized over 15 years. If it is sold separately from a business, it is not considered a Section 197 intangible, and its purchase costs are depreciable under prior law, primarily under IRC Section 167.

The moment that a work is fixed in a tangible form, it is a property right protectable under the federal copyright laws for a limited period of time and hence it is a depreciable, intangible capital asset. Of course the limited life is very long, either the life of the author plus 70 years or in the case of a work for hire, 95 or 120 years. However, the fact that a copyright sold separately from a business is a depreciable property is significant in determining its tax treatment. For example, the mere fact that a copyright is classified as a depreciable asset will qualify it under special provisions that permit depreciating its costs over a period of time shorter than its actual legal lifetime.

In the copyright law, when dealing with a copyright sold separately from a business, it is often important to distinguish between the intangible copyright and the tangible medium on which that copyright is expressed. This is also important from a tax point of view because the tangible medium may be important enough to have a life of its own.