Rights of Academic Authors Seriously Threatened by New Tax Law

An obscure clause in the 1986 tax law may adversely affect many academic writers who claim exemptions for their activities as writers.

The Authors’ Guild describes the problem like this:

A footnote in the Tax Reform Act of 1986 could adversely single out free-lance and self-employed authors and may restrict their ability to write new books.

Pre-1986 tax law allowed free-­lance authors to deduct both ex­penses for a book in progress in the year incurred as well as against in­come from other writing activities in which they were engaged to support themselves. These would include an advance from the publisher, income from magazine articles, books, and other writing projects.

The ability to do this is critical for free-lance authors, especially those at the beginning of their careers or those with extensive and multi-year research requirements, who may or may not have an advance. These au­thors often must partially or com­pletely finance their current work out of income derived from other works.

The Treasury contention that The Uniform Capitalization provisions of the 1986 law applies to authors, may prevent free-lance authors from de­ducting their book-writing expenses in the years incurred. Further, by thus forcing authors to spread their expenses over the income producing life of a work, the authors might be able to take only a portion of their expenses in any year and none in any year in which the author has no in­come from the work in progress. Additionally, under the Treasury in­terpretation, the new law would re­quire that the proportional deduc­tion allowed authors for research and writing expenses could only be taken against the income produced from the work in progress and not from any other writing projects.

Application of the new law under this reading would be disastrous for free-lance authors for a number of reasons. Many pass through one or more of the early years of a project without income. Others often incur research and writing expenses that exceed their advances. Authors who anticipate a long shelf life for a work, or whose book takes many years to complete, or both, may  have to wait several decades to gain the full de­duction for extensive expenditures.

The problem arises from the foot­note introduced into Section 263A in the Conference Report. Section 263A requires capitalization of the costs “which are … (2) incurred in acquiring or holding property (whether tangible or intangible) for resale.” The footnote defines tangi­ble property to include: “films, sound recordings, video tapes, books, and other similar property embodying words, ideas, concepts, images, or sounds, by the creator thereof. Thus, for example, the uni­form capitalization rules apply to the costs for producing a motion picture or researching and writing a book.”

Consequently, the impact of the new ruling can be devastating to authors’ economic interests. They can lose virtu­ally all current deductions of expenses from writing and researching their books and can be forced to spread these deductions proportionately over the in­ come-producing life of the work—re­quiring forecast calculations almost im­possible to make.

In years when there is no income from a project, an author can take no deductions for expenses from that pro­ject. Furthermore, expenses can be de­ ducted only against income from the project for which they were incurred and not against total writing income.

Please write to your Senators and Representatives and ask explicitly that “a clarification be made in the Technical Corrections Amendment Bill, stating that free-lance authors’ expenses in re­ searching and writing a book not be subject to capitalization rules.”