LAW OFFICE COMPUTING

Winton Woods

January 1998

Doing Well by Doing Good--The New Computer Investment Tax Break

If you are reading this column the chances are that you or your office invested a lot money in computer equipment during the last two years. If you bought desktop or laptop computers I am also sure that you have seen equivalent computers on sale now for a half or a third of what you paid only a few years ago. Moreover, you have seen vastly more powerful computers with more RAM, a faster chip and a bigger hard drive for less than you paid a year ago last summer. Finally, you know that the newest computers can perform functions that you need in your office faster, better and safer than ever before. For some of you, this scenario that I have just described only applies to one or two computers, but for others, we may be talking about 25, 50 or 100 computers that are suddenly behind the curve. The new technologies, such as the MMX and Pentium II chips and the ability of the new Windows 95 machines to accept huge hard drives may tempt you. But how can you justify the cost of buying new computers to replace ones that are less than two years old? Well, I may have a solution! But first let me tell you a story.

My wife Bobbe is an elementary school principal of an inner city school in Tucson. Her school has a few computers but they are hopelessly outmoded. Recently, US West gave her school five new computers and a small network. The US West contribution is a major step forward for her school, but she has 600 children to educate. Some of the companies around town have offered to give her computer equipment but it is old and probably not capable of supporting the kinds of uses her school needs. Indeed, some of it is so old that training the students to use it would be like training them to use buggy whips or write with quill pens. Moreover, computer equipment that is six or seven years old is so difficult to learn to use that it may actually inhibit rather than promote learning. Bobbe needs computers, but she needs new ones or nearly new ones. There are thousands and thousands of school administrators just like Bobbe all over the country.

You have nearly new computers that you would like to replace if you could find a way to justify the cost. There are thousands and thousands of lawyers like you all over the country. Since the price of computer equipment has dropped to dramatically in the last several years, you could buy all new equipment for your office for much less than you paid for your present equipment only eighteen months ago. And, if you could sell your present equipment for something close to what it would cost you to replace it with new and updated equipment, you would do it in a "New York minute." Now Bobbe and her thousands and thousands of compadres around the country don't have any money to buy your used equipment but they do have something that might very well be of interest to you. Effective January 1, 1998, a business that makes a gift of computer equipment to a K -12 school is permitted to deduct the full original cost of the equipment as a charitable deduction. There are a few special requirements but they are not tricky or onerous. The school that you donate your equipment to must have an actual plan for its use and implement that plan. You must have purchased the equipment within two years of the time of the donation. Your gift can include computer technology equipment and software.

These are the provisions of the Twenty-first Century Classrooms Act for Private Technology Investment which was signed into law as a part of the tax reform package. The congressional findings that are predicate to the legislation describe in very broad terms the need for technological literacy and proficiency and the value of early training in that regard. Congress estimates that by the year 2000, 60 percent of all American jobs will require technology skills, and it concludes with the finding that the American education establishment has fallen behind the basic technology training curve. The Congressional findings conclude with the observation that bringing of American classrooms into the 21st century will require tens of billions of dollars in national investment in technology, including computer software and interactive connectivity. Against that background of need, Congress declared the purpose of the Act to be the direction of "the innovation and energy of private enterprise to the education of our young people, [to] expand technological literacy, and bring the education of our young people into the 21st century."

Now I am not a tax maven and you will need to consult the act which is an amendment to Subsection E of Section 170 of the Internal Revenue Code of 1986, which is amended by adding a new Section 6 entitled "Special Rule for Contributions of Computer Technology and Equipment for Elementary or Secondary School Purposes." The special tax deduction will be in effect until the year 2000. The math is pretty compelling given the dramatic decrease in computer prices over the last two years. Moreover, if you are just beginning to upgrade systems that have been in place for many years, you ought not hesitate because of the expectation that the technology will rapidly improve and put you behind the curve again when NT 5 networks come on line in a year or so. The Act applies to equipment purchased after the effective date, as well as that purchased before. Here, as in basketball, timing is everything!!

If you need help finding a school just drop me a note. I'll be glad to help!!