Domain Names, Accountants & the IRS
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Monte: Hello everyone. This is Monte Cahn. Welcome to the show, Domain Masters. I'm really pumped up for this week's show. We have one of the very best accounting specialists on the air tonight. I know some of you have already filed your taxes; but those of you who have not and want to know how to handle your domain names, we've got a lot of the answers for you. We're going to go over how to structure the businesses around domain names to defer and help you with your tax liability, and also how to treat domain name sales, domain name appraisals for donation purposes, the money you make on domain name traffic monetization, and the general structure of the organizations of how you should set them up and what works best in your tax benefit and your tax interest. So, we'll be speaking with Evan Brody tonight, who happens to be our corporate attorney and a very good, experienced guy. And then we're going to talk to Ray Fassett from the .jobs group, EmployMedia LLC. They won the bid for the .jobs extension. If everyone will remember, two weeks ago we did a special on the .travel extension; and it was kind of interesting on their approach. And we're going to hear from the folks from .jobs to hear about their process of getting .jobs approved, where they see the market in that area, and how one goes about registering a .jobs extension, who's it for, how much is it going to cost, when it's going to be available, and all that. And, so we're all excited; and we have two huge events coming up next week. Both are domain-related gatherings. One is in Seattle, called the “Domain Name Roundtable”; and the other one is called “Traffic West,” which is in Vegas. I'll be at the Traffic West convention and on a panel there, speaking about registrars and domain name hijacking and how to prevent it; and my partner, Eric Harrington, and half of my other team will be over at Domain Name Roundtable and participating in the CEO roundtable discussions, and traffic monetization discussions. Both shows are actually going on at the same time; but they are two domain-related shows. We're going to do a live broadcast from the Vegas show and interview people at the Seattle show, all at the same time. So it should be pretty exciting for next week. So stand by, we're going to pay some bills, do some commercials. I'll be back on with Evan Brody from Brody & Associates.
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Monte: Hello everyone. Welcome back to the show. This is Monte Cahn, your host, of Domain Masters. Again, today we're going to have some tax discussions and domain and tax discussions with Evan Brody from Brody & Associates. Evan has been our corporate tax person for, I don't know, four years now; and probably is the best in the business. He has over 15 years of experience, worked with KAEPMG and Ernst & Young for about 11 years, started his own business, and basically is a tax guru. He has really helped us out as a corporation being in a new business on the internet and, specifically, in this domain name-related field; and has helped several of our customers in the same area. So Evan is going to talk to us about all kinds of information about how to set up your corporations and optimize your tax benefits so that you're doing the right thing. Evan, welcome to the show.
Evan: Thanks, Monte. Appreciate that. Let's start off with the first set of questions.
Monte: Okay, great. And I know you're in a little bit of a time crunch; so let's go with the very basics. A few months back, I had Steven Lieberman on and we talked about legal structures of how to set up corporations to help from a legal perspective and avoid legal issues, and being sued, and how to protect yourself. But really, just as important if not more important, is how to structure yourself from a corporate standpoint in this domain name business and on the Web. And, so, my very first questions are how should one set themselves up to avoid or to be at the best, in the best situation regarding taxes and how to treat these domain names from a corporate standpoint?
Evan: That's a very good question. Basically, setting up the entity or operating out of the correct structure is really important as much as coming up with other tax strategies and other ideas. For example, the structure that you create is really going to be the structure that you may live with for the duration of your entity's operation. And each entity is different treated for tax purposes. For example, most people usually use a flow-through entity. Flow-through entities are entities that are not taxed at the corporate level, they're taxed at the individual or the entity that's going to receive that flow-through income or loss. First item on the list is a C corporation. C corporations usually are not the best for anyone to use. They're taxed both in the corporation, usually there is a state tax sometimes, and then there is a dividend tax on the way out. So, the triple tax usually is not what people run to. Plus, if you were ever going to sell your assets inside of a C corporation – So let's say you've had a couple assets in there that you've held more than 12 months, and we're going to get into some of these topics hopefully later on about what kind of assets can create a capital gain at 15% and what assets can create an ordinary income at 35%. And generally speaking, an asset that is ever sold in a C corporation never gets a capital gain rate of 15%. There is no such thing as capital gains in C corporations for that favorable tax treatment. So, everything is taxed at ordinary income rates; so the one thing you definitely probably don't want to be is a C corporation. Moving our way into the other realms, the different other entities would be an LLC and a partnership. Generally LLCs are Limited Liability Companies and they avail themselves to pretty good tax positions on that as well. The best benefit of an LLC is the fact that, if you own 100% of it or if you have an entity that owns 100% of an LLC, without making a form 8832 election, that entity is disregarded for tax return purposes. So what happens is, whatever domain names or other property that you have in the 100% owned LLC, it's disregarded for tax purposes and is deemed to be owned by the individual or the entity that owns that. But, of course, you still get the legal liability protection, so you get the best of both worlds. Now, an LLC with more than one member is actually defaulted to a partnership; so a partnership, whether it be an LLC or actually filing as a limited partnership or general partnership, the connotations associated with that particular entity is that the income derived from those type of operations, what it is basically subject to is a tax called FICA. FICA comprises of both Social Security, which is at 6.2%, and Medicare, which is at 1.45%. The summation of 7.65% is then matched by the employer. Also, the owner and the employee, you pay 15.3%. So if you're a service entity, which most of the domains do both selling and you know other service-type orientation, which is pretty much everything else in the domain world, is then going to have this tax that is over and above federal income tax. It's called FICA tax, and that's at 15.3% up to about $90,000 and any income above that $90,000 mark, which is indexed each year from inflation, is then taxed at another 2.9% for unlimited income, including sales of some of these domain sites.
Monte: Oh, okay. So, basically, the big buzz was that I've got to get an LLC. A matter of fact, a couple of people in the chat room were saying yeah I need to form my LLC. That's really not, may not be the best advice from a corporate structure when you're a domainer or own domain names, unless it's wholly owned by another organization, is that correct?
Evan: Well, yeah. There's one item to that too. It's so we have LLCs, we have partnerships, we have unincorporated entities, self proprietorships, and now we move ourselves into, and we talked about the C corp., but let's talk about an S corporation. An S corporation basically is like a flow-through entity. It doesn't pay tax inside of the entity itself; it pushes that through usually to the individual owner. That entity, an S corporation, is the only entity that can filter FICA taxes. Now, the IRS is somewhat privy to that; and so, what the requirement is, is that you pay yourself a reasonable salary from that operation. Once you pay yourself that reasonable salary, all the income over and above that generally is FICA-free, and that's a permanent savings of 2.9%, unlike Social Security, that [inaudible] paid into some sort of account for you in the future; Medicare is not a function of what you pay in, the function of what you don't have in the future, so any amount that you pay in for that, you know, is not really going to benefit you. So you really want to make sure you pay in what you really, truly should pay, and that's your reasonable salary.
Monte: Right, right. Okay, so, and then are there any other types of creative structures that would work best or is that basically it?
Evan: Usually an S corporation is usually the best structure to filter the service income; and of course, that S corporation could, in turn, own 100% LLCs. So, an S corporation filing one tax return could have underneath it subsidiaries, 5, 6, 100 different LLCs, which give asset protection but then are disregarded, and all are treated as if there's one asset in the S corp. So there are some ways you can plan with the S corp. to have it own LLCs and other interests as well. But, of course, there are other drawbacks associated with S corporations on the basis, if you're a company that loses money and maybe is funding that through loans, you may want to look to a partnership or an LLC structure, at least during the period that you're having losses; because you can receive basis sometimes from the losses that, or at least from the loans, that are from the company itself. S corporations, you do not.
Monte: Okay. Okay. Great. Well that's very important, cause that's the foundation and the structure of how one owns domain names. So those people that own domain names personally and have not incorporated themselves, they're really subject to the extra taxes then?
Evan: Extra taxes plus the IRS released some statistical information that, when you're unincorporated on what they call a Schedule C or Sole Proprietorship, the audit ratio which is really something that is a variable that you really don't take into consideration for tax planning, but just some statistical information, those entities get audited 11 times more than if you were a corporation.
Monte: Well, that's an interesting statistic.
Evan: Yes. That was just released.
Monte: Oh, wow. And where was that released?
Evan: That was one of the informations from one of the [inaudible] centers that go on this statistical information on audits on all different types of entities; and the abuse that the IRS sees most, which they have focused most of their audits on, are people that are unincorporated, because that seems to be the highest exposure area.
Monte: Right. Right. Alright. Well, that's great to know. Okay. So now let's move into the domain names themselves. And there are several areas in which we've served our customers and also have experienced domain-related events which are related to receiving income. And, there is the basic registration of a domain name, and the renewals of those domain names and how those are treated, and then there's we go on to how people are monetizing domain names and earning money from those domain names, either through traffic aggregation and monetization or domain name sales and services, and then of course donations and donating domain names to charity and how those are all treated. Let's go with the first step in terms of just the basic registration process of a domain name and how it should be treated in terms of taxes in the structure that you recommend.
Evan: Well, generally speaking, the registration fees and renewal fees are an annual type of expenditure; and annual expenditures are spent in the year that you incur them, so there usually is not a capitalization requirement for that. Other, I guess, realms from that would be, let's say that you acquire a domain name. When you acquire a domain name, that's a little different; because that's deemed to be an asset to the IRS that has value that exceeds beyond one year. And, generally speaking, we consider those Section 1231 assets, which are kind of a hybrid, which is really the best treatment that you're going to get out of an asset for the IRS. Meaning that, if it appreciates and you sell it, in general you'll get capital gains at 15%. If you sell it at a loss, you get an ordinary loss. So, there's some recapture rules, but generally speaking, those are how you treat those two items.
Monte: Okay. So, the actual annual renewal fees is just an annual fee and it's treated that way; but if you sold it for a profit, then it's a capital gains event at 15%.
Evan: Yes.
Monte: And the difference of what you bought it for to what you sold it for, I guess, is equated in that transaction.
Evan: Exactly.
Monte: Okay. Now, moving on to making money on domain names. So let's say I own domain names, I'm not selling it, but I'm now monetizing my assets. I'm turning all the traffic over to paper click advertising and I'm making money on them, or let's say somebody is paying me to use my domain name as a lease and so on. How is that treated?
Evan: Well, generally speaking, income is recognized on the basis of accounting that the individual utilizes, whether it be a cash receipts methodology or an accrual methodology. So, what happens is they pick it up first as they have their general method of accounting and it's cash and they get money, they pick it up that year. If it's an accrual, they pick it up in the year that it accrues and accruals which is not necessarily always the best way to go, accrual method taxpayers, if they receive cash, sometimes on prepaid services will have to pick that up in income under Section 481 or 461 earlier than they had accrued it.
Monte: Okay. Okay. Great. And, so if you're earning money from that, either through somebody leasing a property from you or basically you're receiving money from companies that are having you fill a W-9 out which are paying you a monthly income based off of the use of your domain name. That's how that's treated?
Evan: That's correct. It's income when earned.
Monte: Okay. Now, how about appraising domain names and establishing an asset value. How can that be used either for or against you in terms of taxes? Let's say, I have a domain name and I'm going to get it appraised to establish an asset value so that I have a net worth of a certain amount, or even to the point where I'm going to donate that domain name to charity. For example, a couple of years ago, we were responsible for appraising the domain name Holocaust.org; and it went to the Shoah Foundation after Schindler's List was out as the movie. And my client was able to get over a million dollar tax credit for that domain name. How is that all treated?
Evan: Okay. Evaluations for your current assets really is just something that you would need to present to a bank. It really doesn't have any tax implications; but, on your question regarding a charitable contribution, you're right on the numbers with that. Basically speaking is that, if you're going to donate property, and this is now a general rule, not anything specifically to domain sites at all, but if you're going to donate property and the property is what they consider to be not inventory. So, you've held it, and it's appreciated, either it's what they call 1231 assets, meaning that's an asset that you've maintained in your company or, in this case here, when someone just had this domain name and I'm going to make the assumption that they've held onto that site for 12 months or more. And if you held onto that for more than 12 months, the rule basically is this, and again let me go back a little bit with that $5,000 mark. The $5,000 mark again is a requirement for any contributions of property that's not obviously cash or a check; and any time it's over $5,000, the IRS requires an independent appraisal to be done on that just to qualify that amount to be what it is. And so now, that qualifies the deduction. Now the question is how do you get to that deduction? The fair market value necessarily is not the deduction amount. So, the deduction first goes off of what it's fair market value is minus what ordinary income that would have been generated on the sale of that, had you sold it to a third party. So, if you've held onto it for more than 12 months, and it's a 1231 asset for your company, then the full fair market value is deductible; and that portion that would be the appreciation escapes tax. Of course, there is what they call the 30% AGI limitation, meaning that that deduction cannot exceed more than 30% of the total income on your personal tax return, nevertheless any amount over that is carried forward to another year. Normal deductions are charitable and organizations under say a 501(c)(3) is at 50%, so it's not like anything substantial. But, of course, you do have that limitation and, most important, you escape tax on the appreciation.
Monte: How many years can you flow that through. Let's say it's something of extreme value. Let's say it's over $100,000 and you've donated it.
Evan: Sure, charitable contributions that, in our example let's say had a 30% AGI limitation, when I say someone had $100,000 of income and then they donated an asset for also let's say $100,000 as well. So, the first year, in year one, you take that $100,000, your total income on your personal return, times that by 30%, that means that $30,000 of the $100,000 is deductible that year; and the remaining $70,000 would be carried with the same limitations applying that year with 5 years being the period that you have to utilize it or you lose it.
Monte: I see. I see. So it can really work to your benefit if you're looking for a way to decrease the amount of taxes you have to pay if you want to donate a domain name to your church or to a charity, or what have you.
Evan: Yeah. And then there's all these other special rules now. I'm going through an asset that's been held by a domain company that was used in their primary trader business. Let's say on the Web, trafficking, etc. etc. If there was an entity that, instead, held these out for sale, whether it be on an auction or that's just part of their business of doing that, those are considered inventory. Inventory doesn't get that great step up to fair market value on the charitable contribution. Instead, what they do is they give you the fair market value as your deduction, but they say okay, whatever ordinary income would have been generated from this, you reduce that contribution. Effectively, it brings you right down to your cost basis. And there are some exceptions to the rule. And if you were a C corp., which again I would never recommend but by some chance you were and you donated this inventory to say to maybe, you know there's a special rule dealing with elementary schools and secondary schools, you get your cost basis plus ½ of the profits. So, that applies there. Also, if you were donating equipment, may you had old antiquated equipment on your side but maybe it could be used by an elementary school or a secondary school, that one you'd get favorable treatment as well.
Monte: Okay. Great. And now we talked about a scenario if the domain name was owned more than 12 months. What if its under 12 months? What if I've only owned the domain name for 6 months?
Evan: Yes. What happens is, any of the gain that would be treated as not being a long-term capital gain, which is then any short-term item is then ordinary income, and then what you do is, you have to reduce the gain, or I should say the donation, by any ordinary income that you would recognize. So, if you had this asset less than 12 months and you paid say $30,000 and you were trying to get a $100,000 fair market value deduction, you would be limited only to $30,000 for short term. Own it for 12 months, it goes to $100,000.
Monte: Okay. So it might be an advantage to hold it instead of donate it early. For sure.
Evan: [Laughing] It would be on that notation, yes.
Monte: So, one other important issue we should cover then is how you, just about domain names and amortization and depreciation and how you treat that year-to-year. So, I have a domain name inventory. How does one go about treating depreciation and amortization of my web site assets?
Evan: Well, the first item you mentioned was inventory in there. The one item that's associated with inventory that, in general, is not depreciable, unless you were selling airline engines, which is a special case ruling, but certainly background for this one, anything that you're holding out for sale for customers cannot have any amortization or depreciation associated with it. Only the ones that, let's say, you purchase a domain site, you purchased it for $150,000 and you were using it to monetize traffic flow, that one you would amortize. Again, we amortize that over 15 years. There are some special rules that if you did fall into, like research and development kind of criteria, that we could maybe move it into let's say 60 months or 36 months, but that comes with some very substantial research and development connotations with that. So, in general, it's 15 years.
Monte: Okay. So 15 years?
Evan: Yes.
Monte: And how do you list that on the tax form? Is it listed as normal property?
Evan: Well, it would be a Section 1231 property. Again, this would be one that is not inventory, that you're using it for monetization of traffic flow. In that situation, it would just be, uh, you can put it under the fixed assets side of the equation, you could put it under the intangibles. [inaudible] We would probably move more to the intangible side of the equation and then we would amortize that again over 15 years.
Monte: Okay. Okay. Alright, so we've covered a lot in a short period of time. Is there anything I'm missing here that can help the audience out? What are a couple things that some of the folks can walk away with in terms of stuff they didn't know before. I mean we already talked about how best to set you up from a corporate structure and a lot of people thought an LLC was the best idea, but really it's not. It's more probably an S corp.
Evan: Yes. The S corp. generally is the way to go. You know the key thing is this. If you're doing a lot of research and development; and your designing your web sites with pure let's say maybe the Cobalt or one of the real languages, not the Html. You may be able to get into the R&D side and have your purchase price amortized over a very short duration. As we talked about, the structure of the entity is extremely important. To keep the right entity structure in the onset, and generally speaking, one of the things we did talk about charitable contributions, don't donate something that has an inherent loss onto it. So, if you have something, let's say a domain that you purchased for $150,000 and the fair market value is only coming in at $90,000, you probably want to sell that asset versus donating it, because your donation isn't going to be the $150,000, it's going to be the $90,000. So, those are some of the short and sweet items just to go through in this very, I guess, confined time constraint period that we have here.
Monte: Okay. One of the questions that's coming up is what about domain names that are plans for development on? How can those be treated? So, I'm buying domain names or I'm registering them, and my plan is to develop them into web sites, but I haven't quite done it yet.
Evan: Good question. And that's a trap sometimes too. I'm glad that was brought up. If you actually have a web site or something that was more self-created and it falls under a copyright or something you were looking to make it protected in that capacity, then again self-created copyright and other type of trademark-type of web site domain assets actually have an ordinary income component to it, because it's what they call self-created. So, that's one thing you just want to be careful on; otherwise, if you're just purchasing a domain and kind of spicing it up a little bit without going through something that would be deemed to be self-created, capital gain, if you held onto it for the first 12 months or more.
Monte: Okay. One last question. How do you amortize a domain name that has plans for development?
Evan: Well, the first thing is, in order to start amortization, generally the asset has to be placed in service. So, if you're still in a quasi, you know, in service mode where you're just in development phases, you're really not supposed to be amortizing the asset until it's placed in service. So, if it is an ongoing project and you're continuing that effort, you really need to finish it, and then you can amortize.
Monte: Okay, great. Alright Evan. I really appreciate it. I'm going to, with your permission, I'm going to let everybody know your email address in case there's any additional questions. I'm going to post it up in the chat room.
Evan: Sure.
Monte: Again. Evan is a definite guru in the realm of taxes and how to treat domain names and these types of assets; so if any of you have any questions, his email address is evan@irshelp.net. And, I'm sure he'll welcome any kind of emails and questions that he has. He's a busy man, -
Evan: [Laughing]
Monte: …but he'll do me a favor. Evan thanks a lot for taking the time tonight. I really appreciate it; and, hopefully, those that haven't filed their taxes yet, they can change their corporate structure and get the best tax benefit.
Evan: You got it, Monte.
Monte: Okay. Thanks a lot, Evan.
Evan: Take care.
Monte: We're going to break for a quick couple of commercials and be on with Ray Fassett from the .jobs group. Hang tight.
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Monte: Hello. Welcome back everybody. Monte Cahn. Gosh. That was great. That was a lot of packed information in a short period of time. I'm glad that Evan covered all the different corporate structures, what works best, and of course that didn't catch everything that he said, the archives are available on Moniker.com and on WebmasterRadio.FM, so you can listen to it and mark down all the pointers and give the pointers to your tax accountants as well, in case they don't know how to treat things. My next guest is Ray Fassett. He's the Vice President from EmployMedia LLC. If you guys will remember, I had the folks on from .travel a couple of weeks ago, and I plan on having Ray and his gang on at the same time to talk about the new extensions that have been approved. There are a lot of questions out there on how to get these extensions, are they going to be valuable, is it something I'm allowed to register, and what the costs are going to be, when it's going to be available. So, Ray's on the phone right now, I believe. Ray, welcome to the show.
Ray: …be here.
Monte: Hey, how are you?
Ray: Very good.
Monte: Good. Good. So, Ray, the .jobs approval came through, I guess a couple months ago; and as I mentioned earlier, .travel was pretty excited to get their initiative through, since it took a couple years. How long did you guys work on getting .jobs approved?
Ray: Actually, we started the process of documenting the business plan and putting the pieces together back in 2000.
Monte: Wow. So, it's been a pretty long process then.
Ray: It's been a long process. We finally had the RFP posted by ICAN in December 2003; and we were ready and filed in March 2004. And about a month or so ago, we got the final approval as part of the meetings in Argentina.
Monte: Great. So tell us who .jobs is for.
Ray: .jobs has been created to serve the HR community. Simply put, a restricted format that goes by company name .jobs. So, if you're a company or an employer organization, better put, you can register your company name in .jobs to use that in promotional literature that you use to communicate to job seekers where to find the .jobs page.
Monte: Okay. So, like recruiters, employment agencies, all those?
Ray: Yes. If you're tasked to find people for jobs, then .jobs is for you.
Monte: Okay. And is there a restriction process in terms do I have to have, I mean, can anyone go and protect their own identity in a .jobs extension, even if they're not a HR-related company?
Ray: You have to be an employer organization. That's a restriction; so individuals would not be registering in .jobs, but companies that employ people would be registering in .jobs. And we do a validation process to ensure that the company that is requesting registration, that the name matches that company.
Monte: So, like Moniker, I wouldn't be able to cover my, just cover my bases by covering myself and registering Moniker.jobs if I'm not an employer-type company?
Ray: That's right. If you don't have available, or if you don't hire people or have employment positions, then you would not need to register on .jobs.
Monte: Okay, great. So when will the .jobs extension be available on the internet and what are the details in terms of cost and how one goes about registering it?
Ray: We're launching in phases. It's a new product to the internet; and as you know, being familiar with the domain name industry, there are issues to deal with in terms of a launch. We are trying to be as conscientious as we can to that. The first phase of the launch, we're targeting this on or around the middle of June would be a trade name period. And this simply provides companies the ability to reserve their name without feeling they have to have a land-rush effect, or be first to register. If there are two companies that have the same name, one doesn't benefit over the other during this window of time to be the first to submit. So, that period we're looking to launch somewhere around the middle of June to last about 60 days; and at the close of that period, we will announce that there is contention, in other words, more than one company with an identical company name has applied for that name. We will announce the results of that at the end of the 60 days. And then we're targeting the first-come first-served period, with the live [inaudible] right around the middle of September, on or about, as best we can tell right now.
Monte: Okay, so the verification process to just validate whether you're a jobs-related company; how are you guys going through that screening again?
Ray: We're using a functionality, called “Pending Create” and different than in the world of some other TLBs such as ComNet, or Viz, or Info. We have a delay. So, using the insured registry system, end users would go through a registrar, submit for their company name, it would be submitted then to the registry, but in a pending status. EmployMedia, our role there in terms of compliance would be to validate that request that is sitting at the registry; and once we are able to validate that, we send a command to the registry to create. There is a delay. It's not real time registration.
Monte: Okay. So the delay, you guys go through your own verification process, which I guess is validating you through. Like we had the .travel guys on. They use a combination structure of a current travel agency data base and D&B, and Dunn's numbers to validate and verify that there is in fact a legal corporation there in their industry. Is it the same type of process then?
Ray: It's a little different. We require the end user, the company, to provide us the document that shows that it is their company name, it could be a shareholder document, an annual filing, really anything that's formal or of their own to send to us that we can verify that the person who is making the request is representing the company they're requesting the name for. That's what the process is during the delay time from when the request is first submitted to when we give the command to create.
Monte: Okay, okay. So we covered the validation process, we covered the registration restrictions. So, is any registrar going to be allowed to offer this to human resource-related companies?
Ray: Any ICAN accredited registrar.
Monte: Any ICAN. Because, again, just to do some comparisons, the .travel guys are not allowing companies that resell domain names to offer .travel, which was kind of interesting. So they were kind of controlling on a reseller basis. If a company was a reseller, like Tucals, for instance, would not be allowed to offer .travel because they are a reseller and not an actual provider to the end consumer.
Ray: No, we have no such restriction in that regard.
Monte: Okay. Great. So what's the cost going to be? How's the annual cost going to pan out, and what do you get for the cost? For instance, in the .travel scenario, they had a cost that included some kind of a, more or less, a kind of a directory listing from a search standpoint. Is there a similar process involved with the .jobs listing?
Ray: No, we're not looking at that at the moment in terms of offering it as part of the registration. We are simply offering what is commonly known in TLB industry, which is domain name resolution, that is the product; the company name .jobs to resolve on the internet; the unit cost is $90 wholesale, and it's up to the retailer, the retailer can mark it up or do what they do on the retail end. They're completely on their own.
Monte: Okay, so the cost to registrars will be $90?
Ray: That's correct.
Monte: I see. And so then we have to mark it up to our end users to how we can justify that business.
Ray: Right. And in so, it's really not our area to dictate to the reseller network how they want to sell; but the wholesale cost is $90 and covers the validation process and all that. We handle all of the validations.
Monte: Okay.
Ray: So we are not burdening and don't wish to burden the registrars with that part of the registration process.
Monte: Okay. Now what about reserve lists? .biz and .info didn't allow any 2-letter extensions to be reserved. .travel is holding reservations on generic travel terms, such as travel, hotel, those types of things. What is .jobs restricting and what are they not restricting?
Ray: Well, we're certain following some of the ICAN policies on that, and that includes the 2-letter and single-character registrations. They will definitely all be reserved. All country names will be reserved. And, in addition, we will be reserving categories that, in fairness to the entire HR industry, would not be fair for one party to get what could be an appealing registration. Let me give you an example, such as nursing. Okay nursing.jobs. It's not fair for one party to have that particular registration. So we will be reserving all of the, many occupational categories, many geographic categories; and really the spirit behind that is it gets back to our motto which is company name .jobs. That's the idea for .jobs being launched into the marketplace; and we are using reserve lists to keep to that spirit.
Monte: So generic terms, so it's a similar process. You're going to kind of hold back generic terms that…how are you analyzing what should be reserved? What if the name of my company is Nursing, Inc.? Or, what if I'm Nursing Magazine and I serve the job community in the nursing field. I would not be entitled to the domain name nursing.jobs?
Ray: I believe what you just said is the name of your company is Nursing Magazine, and the spirit of .jobs is for the registration to be NursingMagazine.jobs.
Monte: Okay. And is there a place that people can go to find out what names would be reserved, so that they know what would be off limits, or is it kind of like test-how-you-go? Is there a link that would show what names would be held back?
Ray: There probably will be, and I'm sorry I don't have a definite answer to that. But there probably will be; I mean certainly when the names are requested, we're not allowing them for sale. So we're not going to put consumers through the agony of buying something they think they can buy and then find out they can't. So there likely will be a list published for that purpose.
Monte: And then geographical locations. So forget about the general terms in terms of industry general terms, but let's say it's U.S.jobs. That's a bad example. How about America.jobs or stuff like that? Geographical terms. Would those also be held back?
Ray: Well I think again we have to look back at the spirit of .jobs; and chances are if you're asking for America, your company is either America, Inc. or America LLC, or America something. So, the spirit of .jobs again is the company name .jobs. There's going to be multiple companies out there that might think they should have America; and it's just not fair for one company to have America and the others not. So, the idea here is to reserve a word such as America as opposed to one party getting the benefit over all the other companies that might have the word America in their name too.
Monte: Right. Right. Okay, so how about structure and stability? The .travel guys, I think, are going with the new level platform, which is the same platform that registers .biz and .us. As you know, .org and .info are on the same platform. What is .jobs using in the background?
Ray: We're using what we consider to be the world leader in domain name resolution and TLB operations. We're using VeriSign. The operators of .com and .net, amongst a few SSL TLBs that they operate as well, we are going into the NameStore platform, and should have that piece in place hopefully, we're shooting for Q-3 (third quarter) of 2005.
Monte: Okay. Okay. So yeah, we're a NameStore customer, so we'll have that available then I guess through NameStore. And what is the role of the Society of Human Resource Management and how they play in the .jobs scenario here?
Ray: The Society of Human Resource Management's (SHRM) role is policy administrator for .jobs, and what does that mean? That basically means that it can't be expected that .jobs is going to stay static, only for the reason that the internet itself is not going to stay static. It's going to continue to evolve and .jobs is going to evolve as well. What SHRM's role is is to help .jobs evolve in a manner that always look to represent the best interest of the community, and SHRM is a non-profit organization, the largest of its kind, with over 200,000 HR members and they play the role where ICAN could feel comfortable in delegating certain policy responsibilities in the launch of this TLB. And SHRM's role is to oversee policy for .jobs for the foreseeable future.
Monte: Going back to the VeriSign question, just to clarify, cause as we know the other extensions are on an EPP platform and the .com and .net are soon to go on an EPP platform, .jobs will be on an EPP platform?
Ray: Yes. EPP 1.0 through the NameStore.
Monte: Okay, okay. Great. Anything else we need to know about .jobs in terms of getting geared up for it?
Ray: Well, we're very excited about the launch of .jobs; we're moving fast here to get the trade name period up and running; we're actively talking with registrars now; and if any registrars would like to contact me, please do so at rfassett@employmedia.com. We're excited to talk to you about .jobs. We want to get this up and running.
Monte: Right. Well, we'll be in touch with you about that too. Now, the .jobs platform will be out third quarter of this year, right?
Ray: Yes. That's what we're targeting.
Monte: Okay. So this year, third quarter. And it sounds pretty exciting. The backing behind your company that's supporting this effort, I assume it's of solid foundation and is going to be around for quite a while.
Ray: Yes I think so, The people involved with .jobs are veterans of the FCC licensing arena, television stations, radio stations. They understand the concept and the depth and the caretaker role of owning, in that case the FCC world licensing, where radio stations just don't go dark, TV stations don't go dark. They have that thorough understanding of the responsibility of offering a TLB. As a management team, we understand that role, we understand the obligation that has been put upon us, very appreciative as well, and I can't stress enough that we kind of know what we're getting into here.
Monte: Right. Hey, one question I wanted to ask. Have you got any kind of preorders from some of the companies, like Monster, for instance, and HotJobs, and those, to register their domain names in the .jobs format and do you have commitment from them to move over to that extension, or are they going to stay as a .com company?
Ray: I think you're referring to some larger named job board players in the marketplace. Are you referring mostly to those?
Monte: Yeah. You know, like Monster.com now, would they obviously have the right to go register Monster.jobs?
Ray: Sure.
Monte: Even though it's more of a generic term, but that is the name of their business.
Ray: That's correct.
Monte: And of course, you know, the other job-related businesses. Have you received any pre-commitments from any of those players that would say, hey we like what you're doing here; we'll be not only registering our domain name but leading with that extension and moving our platform over there. Have you had that kind of commitment yet from anyone?
Ray: I would venture to say thousands.
Monte: Thousands?
Ray: Since April 8, when the news hit the press, we've had thousands contact us wanting to register their company name .jobs.
Monte: Right. Right. I mean, for example, would Monster.com be not only registering, would they be using it as a web site, would they be using the .jobs platform as a web site?
Ray: In the Monster example, we have not had communications with them.
Monte: Or Monster-like companies. You know, the larger players?
Ray: Sure, yeah, we've had large players in the E-recruiting marketplace contact us wanting to use .jobs as their primary brand identity. Absolutely.
Monte: Okay, great. Alright, well Ray it was a real pleasure having you on. We're real excited about the new extension; and it does take a lot of commitment, time, and energy to get any new extension passed through ICAN. Obviously it's a supply and demand issue; and it sounds like, with these vertical market efforts for the human resource side of the market, and the travel side, and so forth, do have application. It sounds like it's going to have a unique offering, and I think it's going to be successful.
Ray: I really appreciate it, Monte. We've got our work cut out for us; and we're very much looking forward in working cooperatively with registrars, getting this up and running. It's not going to be easy, so it's going to take a lot of cooperation. And I can't tell you how much we're looking forward to it.
Monte: Great. Great. Well, thanks for your time, Ray. Really appreciate it; and we'll, of course, be in touch as a registrar to help support the effort and offer the extension across our registrar.
Ray: Thank you, Monte.
Monte: Appreciate it. Alright everyone, so that basically winds up this show. Again, I wanted to remind everybody next week we'll be broadcasting live. I'll be in Las Vegas, so I'll be doing the show live from Las Vegas at Traffic West. There's a gathering of 200 folks there, the biggest domainers in the world will be there for the Traffic West conference which will be in Las Vegas. You can see the format of that show and the conference schedule at TargetedTraffic.com. They have a show in Vegas next week and another show in the Fall, in October, in Delray Beach, Florida, right up road from us here. And also, at the same time, which is the 24th - 27th , will be the Domain Roundtable in Seattle. There's close to 300 domainers gathering in Seattle, and I'm going to be calling Eric Harrington, my partner; we're going to get some interviews with some top domain companies, some T.R.A.F.F.I.C. and [aggregation] companies, and talking about both conferences, the impact they're having on the industry, and what's going on at each of the conferences. It will be at the beginning of the show format at both shows, so a lot of the juicy stuff will come the next couple days afterwards; but we'll cover it in the next week after that as well and do a recap of both shows. So it will be fun to join us. Again, I want to thank everybody for listening. If you have any feedback or input on tonight's show or any other shows and some of the topics you'd like to hear. As a matter of fact, the IRS and the tax focus tonight was from suggestions made by listeners to talk about how domain names should be handled in taxes. So I try to put out a format that's of interest to you guys; so, keep the feedback coming. I'm in all the domain forums and my email is monte@moniker.com. Come and shoot me an email, and I'll do my best to try to get your topics and your questions on as much as I can. We will see you next week. Be the master of your domain on Domain Masters.
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