Tax and financial planning questions raised by Diddy’s song rights transfer

investmentnews.com:

Sean “Diddy” Combs surprised the music industry and its observers recently when he decided to transfer rights from his Bad Boy Records catalog to some of the artists and songwriters who long ago helped make him a billionaire.

Although there has been no shortage of news coverage, there aren’t many specifics about the arrangements that Combs and the record label have with the artists: Ma$e, Faith Evans, The Lox, 112 and the estate of the Notorious B.I.G., according to various reports. The transfers come amid Bad Boy Records’ 30^th anniversary, and follow offers to the tune of hundreds of millions of dollars that the label has reportedly received for its catalog.

But advisors say the news raises issues around taxes and financial planning — and there are even some parallels when it comes to business ownership between the music and the financial advice industries.

Usually, songwriters own copyrights but have agreements with publishers to collect royalties for a certain amount of time, split with artists, said Craig Manzino, partner in charge for business management and family office services at Armanino, who works with clients in sports, arts, entertainment and media.

“It’s common that these rights do revert back to the artists at a given point — what we don’t know is why they are reverting,” Manzino said. “These deals could be complicated, and it depends on how they’re worded.”

In cases where rights are transferred, both sides in such deals need to be protected, he noted. And in some cases, publishers might want tax write-offs.

Any time that rights are transferred, “it’s having the right people involved from the beginning of the transaction that’s important,” he said.That means working with CPAs and lawyers whose advice