I personally own a domain name and have claimed, but not yet filed a trademark for the name. The domain was purchased more than 10 years ago and could sell for 5-6 figures. I also have a LLC in which myself and one other person are owning members. We expect personal income to be low this year (as compared to prior years) and the LLC may not be profitable this year. With the IRS, would the gains realized from the domain sale be taxed the same way, regardless if the sale was made by me vs. the LLC? Which might provide better benefits?
A trademark and a tradename and a domain name are all different different. If you have a good or service in commerce you can obtain a trademark or service mark. You don't need it to obtain a domain name, but with a trademark, you can prevent "cybersquatting" and other activities from competitors.
No one can or will give you detailed tax advice online because of potential legal malpractice and because the totality of your financial circumstances would be necessary to give you any meaningful analysis.
I regualarly recommend a minimum team of a CPA and attorney for any serous business.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
This is not an intellectual property law question--it is tax question that can require a rather complicated analysis. Further, the answer may differ depending on where your corporation is located and where you reside because the state tax burden could vary significantly from one state to another. Likewise, the federal tax burden could vary dramatically depending on how this fits in with your other business activities and operations. This would be true for sale of any asset such as this.
Be careful about trying to sell a domain name or trademark (or both) which you have owned or claimed for a long time, but are not actually using in commerce. You could be blind-sided with cybersquatting charges here if you are not careful. Because of tough anti-cybersquatting laws, it is rare these days for someone to legitimately find a way to sell a domain name for a lot of money--most buyers are sophisticated enough to know that they can probably get a court or administrative agency ICANN to make you turn over the domain to them without compensation.
Intellectual Property Law Attorney
If you personally own the domain name, you have to sell it not the LLC, although you might sell it to the LLC and have the LLC then resell it. Don't do that without advice from a CPA or tax attorney as there might be a reasonable market price income imputed to you even if you sold to the LLC for $1 and you have tax fraud issues with which to grapple. If you are not using this trademark, which is likely a servicemark rather than a trademark, or maybe a tradename and neither a trademark nor servicemark. To have an sm or tm you have to have use not just a domain name. As noted by my excellent colleagues, you have possible cybersquatting issues here depending on how close this domain name is to anyone else's marks. Too many issues for just tax advice. You need to see a business attorney so you hopefully get both IP and tax expertise as they are intertwined here. Seems to me that Attorney Doland fits the bill for you nicely on this one. Click on his name atop his answer and give him a call or email.
I am not your lawyer and you are not my client. Free advice here is without recourse and any reliance thereupon is at your sole risk. This is done without compensation as a free public service. I am licensed in IL, MO, TX and I am a Reg. Pat. Atty. so advice in any other jurisdiction is strictly general advice and should be confirmed with an attorney licensed in that jurisdiction.
Ok- this is a very complicated question and you have not given enough facts to give proper advice. With that being said, the trademark could be contributed tax-free to the LLC but what have you and your partner discussed about his dilution of ownership by reason of this contribution. I other words, if you and your partner each contribute $100 to the LLC to get a 50/50 ownership percentage then tell me your thoughts on what happens if you give the LLC (via a tax-free capital contribution) an asset worth $1 million are you going to now change your ownership to be 99.99% you and your partner gets diluted to practically nothing? The Economic Substance rules governing partnerships (an LLC is treated as such under the tax laws) come into play as to what you are going to do in this regard as well as the gain on sale of the asset and the allocation of the sales proceeds. this is all very Tax Accounting oriented and you should speak with your CPA about such rules and the ramifications. There are ways to not trigger problems with the IRS but if you are trying to shift any of this gain to your partner then you will have problems. Like I said it is a very complex area and you best not do it willy-nilly w/o competent tax advice.
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.