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1031 ADVISOR October 2009 |
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IRS Reverses Position on Exchanging "Goodwill" in Intellectual Property I was speaking at a conference with an Intellectual Property (IP) attorney last week and experienced a classic misunderstanding of a single definition between two separate fields of law. The IP Lawyer described the nature of trade names and trademarks. In particular, he explained that trade names were inherently inseparable from the goodwill of the business. Members of the audience questioned if trade names could be exchanged on a tax deferred basis. In Newark Morning Ledger Co. v. U.S., the Supreme Court stated that intangible assets, such as newspaper mast heads, advertiser accounts and subscriber accounts, are not considered goodwill if the asset can be separately described and valued apart from goodwill. The IRS initially ruled in TAM 200602034 and IRS NSAR 20074401F that Newark Morning Ledger Co. v. U.S. was not relevant to the determination of whether intangibles are like-kind under Section 1031. In Chief Counsel Advice 200911006, issued March 13, 2009, the Office of Associate Chief Counsel (Income Tax and Tax Accounting) concluded that intangible assets such as trade names, trademarks, mast heads, and customer-based intangibles that can be separately described and valued apart from goodwill qualify as like-kind property under Section 1031. Accordingly, the IRS will follow the analysis in Newark Morning Ledger Co. v. U.S. The IRS will no longer follow TAM 200602034 and IRS NSAR 20074401F. Smart Strategy. Section 1031 exchanges can eliminate or reduce income taxes, which can be as high as 40% of the costs of strategic sales and acquisitions. Utilizing Section 1031 exchanges to acquire and dispose of Intellectual Property assets on a tax deferred basis is a smart strategic move. Company Management holds the key. The key in managing this transaction as a Section 1031 exchange is to introduce the necessary tools and expertise at the highest levels of Company Management. The initial planning, negotiations, purchase, sale and loan agreements must incorporate Section 1031 requirements into the dynamics of the transaction. Frequently, the transaction is executed without Section 1031 consideration. At that point, the transaction is unchangeable. Tough economic times require effective Cost Management, and cost savings is a key ingredient. Section 1031 Asset Manager® provides the tools to facilitate the reallocation of strategic assets by eliminating or reducing income tax expense to a fraction of the cost of the overall transaction. We provide secure web-based expertise throughout the transaction. For clients purchasing and selling strategic assets once or continuously throughout the year, we provide one single point of contact to reduce your overall transaction costs and to guide you successfully through the transaction. Our automatic tax optimization and expert matching allows you to focus on operating your business and leave the tax reduction to our experienced tax attorneys.
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