Tax Treatment of Distributions Under the University’s Policy on Patents, Copyrights, and Other Intellectual Property and UTRF’s Policy on Revenue Sharing
The University of Tennessee Research Foundation (UTRF) shares revenue from an intellectual property license agreement with the inventor, as specified in the University’s Policy on Patents, Copyrights, and Other Intellectual Property (PCIP Policy) and UTRF’s Policy No. 2008-1 on Revenue Sharing (collectively, the Policies) and the Basic Agreement (the Agreement).
Notice to Inventors
Neither the University nor UTRF provides tax advice to individual inventors. Please contact your individual tax advisor to determine if you may be entitled to capital gains treatment on distributions of licensing revenue made to you by UTRF.
Revenue received from license agreements can include license fees, royalty payments, and proceeds from the sale of equity in the licensee company. Annually, UTRF distributes to inventors a share of that revenue in accordance with the Policies and the Agreement. UTRF reports such income to the Internal Revenue Service on a Form 1099-MISC, as “Royalties,” in box 2.
At times, UTRF will obtain equity from a licensee (e.g., shares of common stock or a membership interest in a limited liability company) as consideration for a license or option. UTRF makes no distribution until that equity is liquidated. Proceeds received by UTRF from the liquidation are distributed to inventors in the same manner as royalties and license fees. Any such amount is also reported by UTRF to the IRS on a Form 1099-MISC, as “Royalties,” in box 2.