robho - 11:16 pm on Sep 18, 2004 (gmt 0)

I realise your question is about US tax laws, but the UK tax treatment might be interesting. The position according to the UK Inland Revenue is:

"What is the tax treatment of selling domain names?

Normally, when a business or an individual sells a domain name, any gain on disposal would be taxed under the capital gains rules as a gain on the disposal of an asset. Where a business or individual trades in domain names for profit, the domain names would form trading stock, and sale proceeds would be treated as trading income for tax purposes."

So, bit like real estate. Buying and selling infrequently it's a capital gain. Making a business of it with numerous transactions, it becomes income. The US capital gains laws are probably utterly different, of course.