As a music, culture critic I make a pretty good tax researcher, so I'll leave it there. Except. Except. It turns out that it was his Nashville friends who might be saving him tens of millions in taxes this year.
Capital Gain!
There was something that I should have known that I didn't learn until prompted by my editor Janet Novack. Assuming this is a straight-up cash deal Dylan will get capital gains treatment on the sale. This is due to one of those odd exceptions to an exception in the Code. Code https://www.law.cornell.edu/uscode/text/26/1221" aria-label="Section 1221 defines capital assets very broadly">Section 1221 defines capital assets very broadly, A capital asset is "property held by the taxpayer" in other words just about everything that can be owned fits the basic definition in 1221(a), which then goes on to tell us all the things that are not capital assets.
1221(a)(3) excludes "a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by a taxpayer whose personal efforts created such property".
So there go all Dylan's songs. Unless he was a front man for somebody whom he secretly paid to write them, they would not be capital assets. But there's more.
1221(b)(3) gives us - Sale or exchange of self-created musical works - At the election of the taxpayer, paragraphs (1) and (3) of subsection (a) shall not apply to musical compositions or copyrights in musical works sold or exchanged by a taxpayer described in subsection (a)(3).
https://www.thetaxadviser.com/issues/2011/apr/newsnotes-apr2011-story-04.html" aria-label="According to the regulations">According to the regulations, the taxpayer makes the election for each work on a timely filed, including extensions, return for the year of the sale. I thought that would make for an awful thick return, but the election is made by reporting the sales as capital sales. So the preparer won’t need 600 extra pages.
Why That Exception?
The exception for musical works was added by the https://www.congress.gov/congressional-report/109th-congress/house-report/455/1?overview=closed" aria-label="Tax Increase Prevention and Reconciliation Act of 2005">Tax Increase Prevention and Reconciliation Act of 2005 (passed in 2006). It was a temporary measure expiring on January 1, 2011, but was later made permanent. I haven't found a lot about the rationale for the provision. There is this from an article - The History of Intellectual Property Taxation: Promoting Innovation and Other Intellectual Property Goals by Xuan-Thao Nguyen and Jeffrey A. Maine:
“Ironically, the 1950 law, which was designed to treat all copyright creators the same, was later viewed by some-particularly members of the country-music industry-as quite harsh to songwriters. To read more click here
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