Paul L. Caron
Dean




Wednesday, December 9, 2020

Did Bob Dylan Sell The Copyrights To His 600 Songs To Avoid A Higher Capital Gains Tax Rate In The Biden Administration?

Jack Bogdanski (Lewis & Clark), It's Alright, Ma (I'm Selling 'Em All):

Dylanread today that Bob Dylan has sold the copyrights to more than 600 of his songs, pretty much all of them, to Universal Music for a reported $300 million. It sounds like a lot of money, but scrolling down in one of the stories, I saw that Stevie Nicks recently got $80 million for hers. Heck, Dylan is not even four times Stevie Nicks? It does not compute. Maybe he sold too cheap.

Anyway, this news causes my alleged mind to turn to a time-honored pastime among tax types: allocating the mega-purchase price among the various songs. The whole catalog is worth the overall price Universal is paying, but how much would you pay for, say, just "All Along the Watchtower"? Tax people have to unbundle packages this way all the time. The packages just aren't usually as cool as this one. ...

Why is he selling now? The income tax hit will be massive. Maybe he's thinking his tax rates are going to go up next year under Biden, and in whatever state he calls home. And maybe he's getting a better tax rate by selling than he would get by continuing to collect annually. But still, he's setting up a nice payday for the IRS if he's cashing in all his chips at once. (Maybe he's getting paid out over a few years, which might allow him to spread the tax hit out a bit over time.)

Geoff Colvin (Fortune), Was Bob Dylan’s Sale of His Massive Music Catalog a Tax Maneuver?:

For a number of reasons, late 2020 may be the absolute optimal moment to sell a top-tier music catalog, and Bob Dylan’s catalog is arguably on a tier of its own near the very top. ...

The deal’s value to Dylan depends on how the proceeds get taxed. A gigantic windfall like his would normally be taxed as a capital gain at a rate of 20% under current law. But President-elect Biden has proposed taxing capital gains as ordinary income for taxpayers with income over $400,000. The top ordinary income rate is now 37%, and Biden has proposed raising it to 39.6%. ...

Such changes rarely happen quickly, but changes to tax law have sometimes been retroactive to the beginning of the year in which they’re enacted. The Skadden Arps Slate Meagher & Flom law firm is warning clients: “The potential elimination of the capital gains rate preference, along with the anticipation of a likely corporate rate increase, could also serve as potential catalysts for taxpayers to close M&A deals this year if they anticipate that these proposals could be enacted in the first year of a Biden presidency, with the possibility of a retroactive effective date of January 1, 2021.”

Bottom line: The tax on a deal like Dylan’s could almost double if it doesn’t get done by New Year’s Eve.

When I read in the Wall Street Journal that Bob Dylan had sold his entire songwriting catalog, I immediately wished that I had been in on the tax planning for that. ...

Assuming this is a straight-up cash deal Dylan will get capital gains treatment on the sale. ... You have to wonder whether anticipation of a new administration with a different view of capital gains was a spur to getting this deal done. Tim Ingham reported on a surge in interest in selling right after the election in Rolling Stone. ...

Recognizing an enormous capital gain is not exactly the epitome of great tax planning. So there may be something else going on. It would be really interesting if Dylan kicks the can down the road with some opportunity zone investments.

https://taxprof.typepad.com/taxprof_blog/2020/12/did-bob-dylan-sell-the-copyrights-to-his-600-songs-to-avoid-a-higher-capital-gains-tax-rate-in-the-b.html

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Comments

He knows his death will come soon. He is just tidying up his affairs before he does so.

Posted by: Geoff Marsh | Dec 11, 2020 8:15:15 AM

This could be a factor as could having ex-wives, big properties to maintain, etc., while his touring revenue has been stopped cold for 9 months.

Posted by: Michael Edwards | Dec 11, 2020 6:15:40 AM

people are really stupid to vote for Biden or those like him. Trump has wanted people to prosper. and Dylan is not a leftist or voice of a generation. he quit that stuff in the later 60s Thank God. met Dylan once and talked to him alone. nice guy. not a famous person type at all.

Posted by: john desmond | Dec 10, 2020 10:01:08 PM

Boomer is as Boomer does.

Posted by: Alvin Cordry | Dec 10, 2020 7:41:29 AM

He might well have been done it for the benefit of his children. Now that his catalog has been sold, there is no possibility of contention or disagreement as to the use and disposition of his copyright catalog. His children will simply divide a huge pile of money instead of spending the rest of their lives trying to agree on how and to who his songs should be licensed. He may well have given them a tremendous gift by freeing them from the business end of his legacy.

Posted by: jms | Dec 9, 2020 6:43:57 PM

Jack Bogsanski: Whether his kids would get a stepped up basis depends on tax law at his death. Who knows?

Posted by: Pettifogger | Dec 9, 2020 2:55:53 PM

Excuse me. Unless I missed its repeal, section 1221(a)(3)(A) says that the sale of a copyright by the person whose personal efforts created it is not the sale of a capital asset. So Dylan's sale results in ordinary income.

Posted by: Bert Lazerow | Dec 9, 2020 12:54:54 PM

Check your math, the difference between 20% capital gains and 37-39% regular income is a lot more then $7M, more like an additional >$50M.

Posted by: Not a Dylan fan | Dec 9, 2020 11:23:45 AM

Stevie Nicks' music might be more likely to be commercially used to mass audiences than Dylan's songs.

Posted by: Uncledave | Dec 9, 2020 9:24:44 AM

$300,000,000 * 20% = $60,000,000 tax
$300,000,000 *39.6% = $118,800,000 tax.

Difference is $58,800,000 not $7,000,000.

Posted by: TheGuru | Dec 9, 2020 8:41:10 AM

Or could it be that fifty years from now people will be asking: "Who's Bob Dylan?" and his catalog will be worthless. Sooner for some of the lesser known artists in similar circumstances.

In 1988 I bought a couple of Fillmore concert posters from a dealer in San Francisco during a stop there. I paid about $60, and a couple of years ago they were valued at over $1300. I doubt if I could get that much for them now, and once the Baby Boomers like myself pass from the scene, they'll be worthless too, but I don't care. I got enough value from them as wall hangings, and I got my money's worth in that sense, so I don't need to be a speculator.

Posted by: Howard Hirsch | Dec 9, 2020 8:34:15 AM

Yes, I'm sure Bob Dylan was mortified at the prospect of possibly paying an extra $7,000,000 or so in taxes on his windfall of $300,000,000. His career, as we know, is one transfixed on the accumulation of wealth, creed of self, and songs defending capitalist greed over human value. Truly the scorching hotness of these takes is too much to bear.

But when all you have is a fixation with greed, everything looks like a tax dodge. Sad.

Posted by: Unemployed Northeastern | Dec 9, 2020 8:30:46 AM

This affects a lot of people (on a smaller scale).

The tax increase will probably go through if the Dems control the Senate. If not, then it probably won't (or at least, it will be scaled back). The problem is that the Georgia run-offs are not till Jan 5, so you have to make the decision to sell or not before you know how the Senate goes.

What to do?

Posted by: Jay | Dec 9, 2020 8:22:45 AM

The guy is 79. Averages say he doesn't have all that much time to do can kicking.

Posted by: TN | Dec 9, 2020 7:53:18 AM

Clever. Keep an eye on this one. But I was going to tease you and say "Who's this Dylan dude?"

Posted by: Nathan Redshield | Dec 9, 2020 7:46:30 AM

In recent years, Dylan performed at a 1000 person birthday party in Vegas for a well known private equity billionaire. Those of you who remember his songs from the 1960s can rest assured that like so many of his generation, he's comfortably managed to combine progressive political views with exquisite sensitivity to maximizing his own after tax income and net worth.

Posted by: PaulB | Dec 9, 2020 7:23:15 AM

If Bob had done nothing and left the catalog to his kids, would all the royalty income have been IRD, taxable as ordinary income to the kids when received? Or would they have gotten a basis step-up to $300 million and been allowed to amortize it?

Posted by: Jack Bogdanski | Dec 9, 2020 2:11:26 AM