Guidelines for Redirecting Royalties and Revenue

Inventors Redirecting their Share of Tech Transfer Revenues to Dartmouth College

[The Trustees of Dartmouth College (Dartmouth) Technology Transfer policy establishes guidelines for distributing revenues.]

Dartmouth’s policy on the distribution of tech transfer licensing revenue provides that a percentage of net revenues are shared with Dartmouth faculty that are inventors or developers (“inventors”) of the licensed patent rights or software. Occasionally, a Dartmouth inventor will desire to redirect (or “waive”) all or a portion of his or her share of revenues to Dartmouth.

Discussed separately below are the three basic scenarios under which redirections can be made: up-front redirection of the entire royalty stream, redirection on a periodic basis, or the inventor may make the redirection to an account that the inventor either controls or is designated specifically to support the activities of the person making the redirection. Please note that this guidance does not address either assignment of revenues arising from intellectual property owned by an inventor or assignments of the underlying intellectual property by such inventor.

The tax consequences of any of these types of actions are the responsibility of the inventor and the inventor should consult with his or her own tax advisor.

The following describes how Dartmouth will treat such redirections.

1. Redirection of the Inventor’s Entire Right in the Royalty Stream

(Irrevocable Redirection) – No IRS Form 1099 Issued

a. An inventor may redirect his or her inventor’s share of agreement revenues without receiving a Form 1099 income statement for these revenues if both of the following are met:

The revenues are not specifically designated to be transferred to an account under the control of that inventor or to support the activities of that inventor (even though the account is not directly under his or her control), and instead, are designated to a Dartmouth general fund or a Dartmouth Unit; and
The inventor’s entire share or a specified percentage of the inventor’s entire stream of current and future revenues is included in the redirection.

b. The redirection is irrevocable because the inventor is redirecting the entire royalty stream (or portion thereof) up front. Aside from the original designation, the inventor has no control over future use of the revenues, so the inventor may not change the redirection (e.g., to a different unit). There will be no further transactions, and the inventor will receive no further documentation from Dartmouth.

c. It appears that the IRS might allow a deduction for a charitable contribution if the donation represents the donor’s entire interest in the royalty stream. When such a redirection is made, Dartmouth Controller’s Office will consult with the inventor or the inventor’s tax advisor in order to determine whether such a deduction is allowable and if so to determine whether Dartmouth should issue a gift receipt to the inventor.

2. Periodic Redirection of Specific Amount of Revenue

(Revocable Redirection) – IRS Form 1099 issued, Gift Receipt issued

a. If the inventor’s share of licensing revenues is not specifically designated to be transferred to an account under the control of that inventor or to support the activities of that inventor (same requirement stated above), an inventor may redirect his or her right to the inventor’s share of revenue on a periodic or ad hoc basis (e.g., annually) or have a standing and revocable agreement to redirect revenues with the following consequences:

Dartmouth will generate an annual IRS Form 1099 income statement exactly as though the inventor had received the revenue personally.
Dartmouth will provide a gift receipt in the same amount as the Form 1099 to the inventor to potentially allow the inventor to offset this 1099 income. Whether the gift receipt will fully offset this income is dependent upon the inventor’s tax situation (e.g., as limited by Schedule A), so inventors are strongly encouraged to seek tax advice before making this waiver to determine if a tax liability will occur.

b. Procedure

The inventor will have to instruct Dartmouth annually (though standing instructions are acceptable) as to the redirection of specific amounts of revenues to Dartmouth. Each redirected amount is a separate transaction, and the amount of each transaction may differ (and may range from $0 up to the total amount due to the inventor for the given period). This type of redirection is revocable in the sense that the inventor may decide annually to not redirect new inventor shares to Dartmouth and may alter the amounts donated. These transactions will take place in each year until the revenue stream has ended.
The Dartmouth Tech Transfer Office will notify the appropriate Dartmouth Offices each year to issue to the inventor (a) a Form 1099 for the amounts redirected in that year and (b) (assuming that the redirection legally qualifies as a donation) a corresponding gift receipt for the same amount.

3. Redirection of Revenues to Account over which Inventor has Control on Periodic Basis

(Revocable Redirection) – IRS Form 1099 issued, No Gift Receipt issued

a. Regardless of whether the inventor redirects the entire royalty stream or any amount thereof, an inventor may redirect royalties to an account under the control of that inventor or designated specifically to support the activities of the person making the redirection, with the following consequences:

A yearly IRS Form 1099 statement will be generated exactly as though the inventor had received the revenue personally.
Dartmouth will NOT issue a gift receipt.

b. Inventors are strongly encouraged to seek tax advice before making this redirection. The IRS will likely require the inventor to declare all the Form 1099 income as personal income, without any offsetting charitable tax deduction.

c. Procedure

The inventor may instruct Dartmouth annually (though standing instructions are acceptable) as to the redirection of specific amounts of revenues to Dartmouth. Each redirected amount is a separate transaction, and the amount of each transaction may differ (and may range from $0 up to the total amount due to the inventor for the given period). This type of redirection is revocable in the sense that the inventor may decide annually to not redirect new inventor shares to Dartmouth and may alter the amounts donated. These transactions will take place in each year until the revenue stream has ended.
The Dartmouth Tech Transfer Office will notify the appropriate Dartmouth Offices each year to issue to the inventor a Form 1099 for the amounts redirected in that year
Dartmouth will NOT issue a gift receipt.

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