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In "Instructions for Form 8283"1, it says you can donate and deduct:

Intellectual property. The FMV of intellectual property must be reduced to figure the amount of your deduction, as explained earlier. Intellectual property means a patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i)), or similar property, or applications or registrations of such property.

In section 1221(a)(3) of U.S. Code § 1221 - Capital asset defined (extra bold/emphasis mine):

(a) IN GENERAL For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include

  • (3) a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by
    • (A) a taxpayer whose personal efforts created such property,
    • (B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or
    • (C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B);

My question is about section 1221(a)(3)(C); my understanding is that it is meant to prevent simply giving over an IP to a family member or friend, and thus bypass the condition of 1221(a)(3)(A): "a taxpayer whose personal efforts created such property" 2. But I'm not sure what paragraph (C) actually means, and how it avoids this bypass. Specifically my question is to explain this passage ( 1221(a)(3)(C) ), and to explain if it would apply to say for example, if two friends exchange IPs "of their own effort", in a barter exchange, and then turn around and donate their newly owned assets.


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