Trademarks and Trade Names
IRS Chief Counsel announced recently that intangible items such as trademarks, trade names, mastheads and customer-based intangibles can qualify as like-kind property. In order to qualify, they must be described and valued separately from goodwill. If this requirement is met, then these intangibles will qualify as like-kind property for an exchange under Internal Revenue Code Section 1031. Intangible assets are generally amortized under Section 197 of the Internal Revenue Code. Being they are intangible, like kind exchange was generally more difficult or impossible to achieve.
Editor’s Comment
This is a complete reversal in position by the IRS. Previously, the IRS held the view that trademarks and trade names were part of a larger asset of a business, such as goodwill. According to IRS regulations, the goodwill of a business is so unique and inseparable that it cannot be of like-kind to the goodwill of another business. As a result, these items did not qualify for a like-kind exchange under Code Section 1031. However, with this change in position, the IRS has opened up new possibilities for many businesses.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors