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Abstract

Websites are not only an important part of our electronic lives, they are an important financial and business asset in their own right. With the growth of the internet as a commercial, informational, and recreational resource, companies utilize websites as an important part of their corporate financial portfolio and structure. The increased value of websites that comes from this growth has made websites a valuable asset that companies seek to use as they would other business assets. One important consideration is how the value of websites will be treated upon sale or exchange. In other words, is the website an asset that can be merely capitalized and act as a recovery of basis, or can it be amortized and written off before being sold to a different buyer?

The tax code and regulations provide several potential methods to answer this question. This Comment will explore the interactions between some of those tax code provisions, specifically 26 U.S.C. § 197, and to a lesser degree, I.R.S. Revenue Procedure 2000-50, and the intellectual property rights associated with websites. Part II of this Comment presents a hypothetical, which will demonstrate how a website’s intellectual property rights interact with some of the current tax laws. Part III will briefly explore how the intellectual property rights of copyright, patent, and trademark apply to websites, with particular emphasis on the issues that copyrights have with websites. Part IV will explore the history of intangible asset amortization, which culminated in the creation of 26 U.S.C. § 197 in 1993. Part IV will discuss the way websites’ intellectual property rights interact with section 197 and Revenue Procedure 2000-50. Part V of this Comment will discuss conclusions and some potential solutions for the problems presented by the tax code and regulations.

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