Our University like many others has provisions for returning a portion of
the net income from sale or licensing of the IP to the creators.  I am now
involved in a discussion about how to make these payments from the
institution to the employee.  No one disagrees that this is taxable income
to the employee; the only debate is about the administrative process to
process the payment.  The two alternatives seem to be 1) through accounts
payable along with a 1099 at the end of the year OR 2) through payroll and
subject to withholding, FICA, etc.

Payouts through a payroll process are certainly legal but may not be
necessary.  Payouts through Accounts Payable may violate the rule that a
W-2 form and a 1099 form should not be generated for an employee in the
same year.  My impression is that the majority of institutions accomplish
this through Accounts Payable, but I might be wrong about that.  I would
like to get a general sense of how this is usually accomplished at other
institutions along with issues that have resulted.  Also, for those more
directly involved in maintaining financial systems/integrity for your
institutions, can anyone provide written documentation or published
determination notices or letters of guidance concerning this issue.

Terry A. May, Ph.D.                       Voice:    520-523-6788
  Director of Research Administration     FAX:      520-523-1075
  Office of Grant & Contract Services     INTERNET: xxxxxx@nau.edu
  100 Babbitt Admin. Ctr., Box 4130
  Northern Arizona University
  Flagstaff, AZ  86011-4130