Domain name sale- LT capital gains or income tax?

Prior to closing my 30 year old business, I sold its domain name. Two accountants as well as 1 IRS agent tell me it will classify as a capital gain, while two other accountants and 1 IRS agent say it falls under income tax. I will go to a fifth accountant and a third IRS agent to break the tie, but was wondering if anyone here has personal experience with these types of sales.

Internet searches reveal that this issue has not been resolved by the IRS, so what does a taxpayer do?

I would go with long term capital gains mostly because taxes would be lower but also because in my mind a domain name is for all intents and purposes virtual real estate and if you're business had bought a building that appreciated you would expect to pay capital gains tax not income tax on any gain. I am by no means an expert on taxes or dealing with the IRS I'm just not sure how an asset such as a domain name wouldn't be considered a capital gain imo.

What arguments are you getting for and against listing it as a capital gain versus regular income?

Thank you for your responses. The most interesting and informative info I found on this is from this article.

http://www.allbusiness.com/company-activities-management/company...

Whether a domain name is deemed an amortizable intangible or not, it is still considered a capital asset, if not under section 1221 then under section 1231. Under either scenario, the gain or loss inherent in the transfer of the contract will be a capital gain, rather than ordinary income, provided the requisite one-year holding period is satisfied.

Unfortunately, my newest accountant doesn't agree. With LT gains at zero for this year, that would be the best financial event of the year for me.

tvholic said: It kind of depends whether you're in the business of selling domain names, where it could be considered inventory. Similar to you selling a painting you bought for your office, vs. an art dealer selling 100 paintings.

Personally, I got one IRS representative to deem a capital gain, and that was good enough for me.IRS doesn't give good tax advice. Whatever opinion they tell you is not legally binding to the IRS. Don't rely on them.

My guess of why certain CPAs and IRS agents are telling you that the gain on the sale is ordinary is that you never capitalized the cost of the domain name and thus you did not treat it as a intangible asset. You probably expensed the purchase price and all the renewal fees when paid.

Here is the IRS publication that deals with the sale of intangibles: link

Theman2- yes, you just said exactly what the accountants said...except one also said that despite the costs being expensed, I still could claim a capital gain. Maybe it was because he was the accountant that expensed it.

ferengi31337 said: I am not an accountant, but I have studied accounting a bit. Seems to me like the initial expense treatment was wrong since a domain name would clearly have a life of greater than a year and should have been treated as an asset.

It's not uncommon to not capitalize priced assets to streamline accounting.

theman2- the old accountant just gave me his opinion but isn't doing the return as I relocated out of state. My new accountant disagrees with him, that is what started my search for the correct answer.

ferro said: theman2- the old accountant just gave me his opinion but isn't doing the return as I relocated out of state. My new accountant disagrees with him, that is what started my search for the correct answer.

Your new accountant disagrees because he's risk averse.

But what kind of scope you talking here? How much did you sell the domain for?