Determining the Tax Treatment of Profits from Domain Name Sales

Maxine D. Morgan, JD, CPA

The astounding growth of the Internet has led to a dramatic increase in the demand for domain names, giving rise to a vibrant market for the purchase and sale of such names, often at hefty prices. For example, “business.com” was acquired by eCompanies, LLC, in 1999 for $7.5 million, and in July 2007, R.H. Donnelley Corp. purchased the domain name for $345 million. For $3 million, Bank of America acquired the highly pursued “loan.com” at an electronic auction held in January 2000. Finally, “sex.com” sold for $12.5 million (Steven Levey, “Sticking to the Business: Jake Winebaum Rode the Boom and Weathered the Bust. Now He's Focusing on Work—Dot-com Style,” Newsweek, October 16, 2006, and Brian Deagon, “Domain Name Game Still Going Strong; Tad Less Secretive,” Investor's Business Daily, February 11, 2008).