Opinion ID: 2232144
Heading Depth: 1
Heading Rank: 1

Heading: Franchise as an Item of Value on Liquidation.

Text: For purposes of this decision, we consider that all the potentially taxable goodwill is embodied in the Coca-Cola franchise. This is because any goodwill resulting from petitioners'  personal reputation and management ability was not an item transferred by the corporation upon liquidation. Petitioners cite two federal tax court cases where franchises surrendered by corporations upon their liquidation, and reissued to the businesses in a new form, were held not a proper element of value in computing the gain on dissolution. Akers v. Commissioner (1946), 6 T. C. 693; Savidge v. Commissioner (1945), 4 TCM 545 (CCH). The facts of the instant case are readily distinguishable from these two cited cases. Here the franchise was not terminable at the will of the issuing corporation, and the franchise was held by the corporation rather than personally by its owners. Madison Coca-Cola Bottling Company surrendered its franchise only upon the express condition that the business, operating in a new form, would be issued a new franchise. Thus, issuance of the new franchise was not a matter of grace by Coca-Cola but was attributable to the conditional surrender by the old corporation. We think that the franchise, in effect, was thereby transferred to the partnership upon dissolution of the corporation and that its value should be included in determining the gain to petitioners upon dissolution of the old corporation. In some situations it might be necessary to segregate the value of a franchise from the other goodwill. However, as noted above, in this case we treat the value of the franchise as encompassed in goodwill.