Donating domain names and the IRS

[melmunch]

Lets say you have a domain name with a reseller value of $1,000. If it were appraised on the forum, it would get a 1k value from reseller, but a 5k value for end users.
Can I sell 20% of the domain name for 1k and donate the rest, and get a 4k charitable deduction? (Yes, this is a 501c3 and the domains would actually help out this charity)

Or, can I donate the entire domain and get a 5k deduction?

Do I need to figure in my cost basis anywhere, or is it the value that matters? Also, what type of appraisal would be sufficient to satisfy the IRS?

 

[draggar]

It only goes by how much it cost you. If you hand regged it and then donated it, then you can only deduct the reg fee. (I talked to my accountant about this last year).

As far as a domain that makes revenue, that might be another story for someone more experienced with this.

 

[Gerry]

I think for that amount, as in all charitable dealings, you would need a certified appraisal for the domain. This may be the one time an appraisal would be beneficial. One that tells you your domain is worth $50,000.00. Otherwise, they are crap.

But the biggest issue you will run into is this is not tangible property. Nor does the IRS agent sitting at the desk likely to know squat about a domain name.

Sounds like a good reason to get audited. If so, have every thing in order.

But do review the guidelines for donations. This is a very touchy subject and often is abused which makes it even more prone for scrutiny.

 

[melmunch]

I am sure that I could get a valid appraisal for 5k. That would be lowballing it as far as the actual value to an enduser.

The domains do make some money, hence their reseller value. The leads that they produce have even more value to an enduser, so the domains would really sell for at least 5k to an enduser.

Surely at some point, a domain would have more "value" than the original cost basis, according to the IRS. Lets say I register aa.com 15 years ago and have paid a total of 1k in renewals. Obviously it has an actual value well beyond that... would they recognize that?

 

[Gerry]

I am not an IRS agent. But I am a business person and have my own LLC and member of partnerships.

The point is, every thing has a cost basis.

Still, you are talking intangibles that would be treated differently.

It would be like walking into the local bank and telling them you want to borrow money to buy domains. We are domainers. The rest of the world is not.

Virtual real estate, remember. Much easier to value and appraise land.

On the other hand, try making a cool million on aa.com and not reporting that. Then you would find out first hand that the IRS does not know squat about domaining but they sure know a hell of a lot about capital gains.

 

[draggar]

The renewal fees are possible, but you would have to have receipts or invoices for all of them. This was one thing I specifically asked my accountant last year since I was considering donating some domains to them. Like any donation, it is either what you paid for it or the current value, whichever is lower. All appraisals would be taken with a huge grain of salt since there is no "Kelly Blue Book" for the bulk of domains out there. Appraisals are now nothing more than opinion and can very exponentially (a domain might be appraised at $500 for one and $50,000 at another).

But, like I said, someone more experienced could go into how the revenue from the domain might affect this (and also depends on who keeps the revenue, you or the people you "donated" it to?). If you keep it, then you can't claim it but if they keep it then you might be able to consider it loss of wages or a recurring donation (but only on the previous year or from when they started to take the revenue, you cannot project it for the next year).

But, if you sell it for 1K then the IRS thinks you made $1,000 as taxable income and you won't be able to take the other $4,000 as a charitable donation.

 

[melmunch]

I appreciate the advice. My thinking was, if I am reporting 50k in profit from other domain sales in the same year, and the donation is made by the company that also made money with the domains, wouldn't they be looked at with the same pair of eyes and that would be enough education for that agent that there is some value to thhis "intangible asset" after all, if I could sell enough to make 50k, then it is believable that these might be worth 5k.

 

[draggar]

5,000 domains at $10 a pop is $50K. Just because you brought in a lot doesn't mean they're worth a lot (just look at your local dollar store's sales numbers).

 

[melmunch]

I wuld be showing the specific sales that netted the 50k, and it is only from a few domains, all over 5k.

 

[Gerry]

It is not a matter of what you believe something is worth.

It only matters what the IRS thinks it is worth since we are talking about them.

No two domains are alike, it can't happen. They can be similar, but they are not alike.

I am working on my taxes right now. Schedule C I show my profit. Or losses. Then schedule D.

Either way, I end up doing a cost basis.

The primary point is domainers know domains, can give you a good idea of its worth, but the IRS knows only one thing and it is not domains.

It is not like you are donating a car, an estate, or a Van Gogh that will have an appraisal value to it. It is tangible property.

Domains valuations and tax write offs are really pushing the envelope here.

The only way that I can see this coming to pass is a notarized copy of a legitimate offer COMPLETE WITH A LEGAL SEAL of making such and offer to you COUPLED WITH A NOTARIZED AND LEGAL SEAL of you accepting a partial offer and claiming the rest as a donation. Then, the receiving end would have to be verified as a tax exempt charity.

But that still may not do anything convincing. It would be like selling a mason jar filled with air. And it is the air you are charging for.

All I can say, is good luck with this.

 

[socalboy]

It's got to be a legitimate donation to someone that wants it. For instance, I was recently contacted by a veterans organization for one of my .orgs. They balked at the price, which I thought was fair for a 1-worder ($1200, if you must know). Since I may have considerable capital gains this year, I'm now considering donating it to them. It even makes money

You need to document everything. It's worth paying for an appraisal from Moniker; their appraisals can be used for IRS purposes. The reg fee or purchase price plus renewal fees can be capitalized; the annual PPC is income in that year.

Remember, if you don't want to raise flags on your return, the organization to which you donate should be a recognized charity and have made the required filings to that end. I would make sure and get a letter from them indicating that they accept the donation in the amount you claim.