Intellectual Property
Intellectual Property, or IP, is defined to be tangible or intangible asset(s) used and/or owned by the nonprofit corporation to further the exempt purpose of the organization, and is not intended to privately benefit the creator, stakeholders, interested parties or individuals.
The Problem
The IRS looks at Intellectual Property as belonging to the nonprofit corporation, handled and managed to primarily benefit the needs of the nonprofit and its purposes. There are several factors to consider:
1) Primary purpose of the organization – Does the intellectual property serve to further the purpose of the organization and extend the programs of the organization? The need to have and manage intellectual property to further the needs of the organization’s programs, vision, or mission must be demonstrated.
2) Non-commercial development, use, and distribution – Is the development, use and distribution of intellectual property restricted in that it is not primarily a means to generate revenues to support the needs of the organization?
3) Private benefit to individuals – the intellectual property development and distribution agreements should stay away from private benefit to individuals within the organization or through contractual agreements. Be careful that any agreements are dissimilar to traditional or commercially equivalent behaviors in the market place. Sharing proceeds from the sale and distribution of intellectual property through royalties or commissions must be carefully defined, if it is to be at all allowed, to ensure that the primary purpose of the organization is supported through the intellectual property involved and the activity is not just a means of generating revenue to support the budget of the nonprofit itself. Sale of goods to generate funds to support an exempt organization does not sufficiently support the primary purpose of the organization.
The Solution:
Approach the subject with the following mindset, even to adopting a resolution to ensure this is the guiding intent:
- The organization will develop its own materials where necessary to best present information and topics. It will retain all intellectual rights to each project funded through the organization as a finished work, and any copyright agreements for the use of materials will be implemented to ensure that no individual inappropriately benefits financially from the efforts of the organization.
- If any individual members of the organization hold copyrights to items distributed or sold by the organization, the holder of the copyright will not receive any benefit from the copyright, including royalties from the sales of the items.
- Transactions will be held at arm’s length in conjunction with the conflict of interest policy contained in the corporate bylaws.
- All copyrights held by the organization will be considered assets of the organization and upon dissolution of the organization will be distributed in accordance with the Articles of Incorporation and the requirements of IRC 501(c) (3).