Re: Payouts to Creators of Intellectual Property (IP) Jane A. Youngers 15 Jun 1998 14:33 EST

First, thank you, Terry, for a new discussion topic.  I've think we've
beaten the anonymous user thing to death at this point.

At my former institution, I was the person who dispensed the royalty checks.
We did this by issuing a regular accounts payable check and a 1099 at the
end of the year.  From time to time, questions about whether this should go
through payroll would arise so we finally asked our attornies for an
opinion.  Their opinion was that we were doing things correctly; these
payments are not for services (thus not compensation) and, consequently, do
not have to be made via the payroll.  I believe at that time I also
canvassed many other large institutions they do the same thing (check with
1099 at the end of the year.)

(Terry, I'm not sure I have the determination letter  any more but I
distinctly recall sending a copy to Jim Brown at Colorado State who had the
same question a couple of years ago--you might want to chat with Jim.)


>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:
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Jane A. Youngers
Office of Grants Management
University of Texas Health Science Center at San Antonio
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San Antonio TX  78284
voice:  210-567-2333
fax: 210-567-2344