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Sunday, March 15, 2009


In my September 28, 2008 posting, I discussed a 2006 technical advice memorandum (TAM 200602034) that extensively analyzed various Section 1031 issues, including like-kind exchanges of trademarks and trade names. That TAM provided that trademarks and trade names could not be exchanged tax-free under Section 1031 since they were too close akin to goodwill and going concern value, two items which cannot make use of the like-kind exchange rules.

The IRS has rethought its position on that in a recent TAM.

Instead, the Service is allowing the Newark Morning Ledger Co. case, which held that intangible assets are not always part of goodwill, and acknowledged that they can be treated as separate assets if they can be separately described  and valued apart from goodwill. This separation from goodwill will now be recognized in the Code Section 1031 area for trademarks and trade names.

The Service is not saying that all trademarks and trade names are automatically "like-kind" with other trademarks and trade names. Instead, the "nature" and "character rules" under Regs. Section 1.1031(a)-2(c)(1) still must be met. How that will work itself out in practice is hard to determine at this point - hopefully future TAMs or IRS rulings will provide some useful (and not too restrictive) interpretations of what types of trademarks and trade names will be considered like-kind. For example, since Regs. Section 1.1031(a)-2(c)(1) includes a review of the nature and character of the underlying property, one can anticipate that the IRS may limit the application of Section 1031 in this context to exchanges of trademarks or trade names when the property to which the trademark or trade name relates is itself like-kind with the property to which the trademark or trade name relates that is received back in the exchange.

Office of Chief Counsel Internal Revenue Service Memorandum 200911006

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