If say I was left reallycooldomain.com in a will and it could be sold for $1million+ would I have to pay inheritance tax on the $1million+ valuation or would it just be valued as per the $10 registration?
As an aside: do we really own these domains or do we just own the right to lease them?
Inheritance tax (US)
If it has been listed as an asset in a financial statement OR if there is an income stream which can be traced back to the domain/site, the domain registration is likely to get valued as part of the estate.
This isn't quite correct. You do own the domain name. Yes, you have to keep paying the registration fees. However, so long as you continue to do so, the domain name is intangible property. That domain names not only have been sold, but also in some cases for very large sums of money, is indicative that indeed there is a legal ownership interest.
But don't worry, no one is paying $1 Million for domains anymore anyway :)
(2) Make sure your domain registrations are paid up well in advance. Don't leave renewals until the last minute, and don't even depend on auto-renew services provided by some registrars. What if your credit card was tied up in your estate and the renewal didn't go through?
If you keep important domains paid up at least a year ahead, your survivors/executors would have a reasonable chance to figure out what to do. It might not matter so much for the domains in your "someday I'm gonna do something with this" collection.
You would also want to keep the deceased's email address active long enough to transfer the domain since domain admin and transfers are tied to that email address.
Interesting question regarding taxation of a domain as an asset. I'm not aware of any tax opinions on the topic. Since they expire from year to year, and you never really own them, they are a peculiar form of property. I have yet to hear that you can depreciate domain acquisition expenses. Yet, when you buy one for $1 million how do you carry that on the books? Good will?
Do a little online research and report back.
I need you on my estate tax team --you get to go in the trademarks department, I guess.
Dated, webwork, but still seems to be the "standard" treatment for routine domain names. I've not seen any tax info on how 7-digit domains are being handled.
Tax treatment of domain names
IRC §197 deals with deductions related to intangible assets purchased for use in business. The purchase of a domain name falls under this category. Generally, an intangible covered by this code section is deducted over a fifteen-year period.Trademarks are §197 intangibles, and the definition of the term is broad enough to include domain names.
Where a domain name operates as a trademark, it qualifies for §197 tax treatment. If a domain name has inherent value (which is a separate asset), this aspect of the name does not meet the definition of trademark and does not warrant the same tax treatment.
"In general, however, it is important to note that even when a domain name is not deemed a trademark, it can still be considered an asset that can be amortized or capitalized for deduction purposes," says Jim Riedy, partner, McDermott, Will & Emery, Washington.
Until the tax laws change, this is the best way to handle domain names when determining their value for tax purposes.
[tax.cchgroup.com...]
