Document: 507 U.S. 546 113 S.Ct. 1670 123 L.Ed.2d 288 NEWARK MORNING LEDGER CO. as Successor to the Herald Company, Petitioner,v.UNITED STATES. No. 91-1135. Argued Nov. 10, 1992. Decided April 20, 1993. Syllabus * Petitioner newspaper publisher is successor The Company. When, in 1976, purchased substantially all outstanding shares of Booth Newspapers, Inc., it allocated its adjusted income tax basis among assets acquired merger with Booth. Among other things, $67.8 million an intangible asset denominated "paid subscribers," a figure that was petitioner's estimate future profits be derived from identified subscribers Booth's eight newspapers on date merger. On federal returns for 1977-1980, claimed depreciation deductions million, which were disallowed by Internal Revenue Service (IRS) ground concept subscribers" indistinguishable goodwill and, therefore, nondepreciable. paid taxes, and petitioner filed refund claims ultimately brought suit District Court recover taxes interest paid. At trial, Government did not contest expert evidence methodology used calculate stipulated useful life each newspaper. Instead, estimated asset's value at $3 cost generating new subscriptions, principal argument remained goodwill. court ruled favor, finding self-regenerating—i.e., had limited life, duration could calculated reasonable accuracy—that properly value, separate distinct Appeals reversed, holding even though may have can ascertained accuracy, Held: 1. A taxpayer able prove particular valued has depreciate over regardless how much appears reflect expectancy continued patronage. Pp. ____. (a) While allowance § 167(a) Code applies assets, IRS consistently taken position Since customer-based intangibles, such customer subscriber lists, obviously depends voluntary patronage, question been whether these intangibles depreciated notwithstanding their relationship "mass asset" rule courts often resort considering this prohibits when constitute self-regenerating change but never waste. (b) Whether or taxpayers successful separating depreciable any case fact. falls within core goodwill, capable being diminishes time. (2) borne successfully substantial burden proving constitutes ascertainable accuracy. It proved rather wastes finite number component subscriptions are canceled reasonably predictable period presented no refute fair market uncontroverted trial revealed above mere list customers, mistakenly characterized Government. 945 F.2d 555, reversed remanded. BLACKMUN, J., delivered opinion Court, STEVENS, O'CONNOR, KENNEDY, THOMAS, JJ., joined. SOUTER, dissenting opinion, REHNQUIST, C.J., WHITE SCALIA, Robert H. Bork, Washington, DC, argued petitioner. Lawrence G. Wallace, respondent. Justice BLACKMUN Court. 1 This presents issue whether, under 167 Code, 26 U.S.C. 167, treat nondepreciable solely because considers matter law.1 2 Newark Morning Ledger Co., New Jersey corporation, publisher. Company merged 1987. Eleven years earlier, daily Sunday Michigan communities.2 May 31, 1977, publish papers old names. Tax code provisions effect 1977 required allocate proportion respective values time See §§ 332 334(b)(2) (1976 ed.).3 3 Prior merger, Herald's approximately $328 million. $234 various financial (cash, securities, accounts notes receivable, wholly owned subsidiary published Parade Magazine, etc.) tangible (land, buildings, inventories, production equipment, computer hardware, etc.). also subscribers."4 consisted 460,000 These customers whom requested paper regularly specified address return payment subscription price. at-will subscribers, most expected continue subscribe after acquisition. apparently important factor decision purchase determination appropriate price shares. Brief 4-5. After allocations, $26.2 remaining going-concern 4 calendar inclusive, straight-line subscribers." applicable Regulations. resulting additional taxes. 1987 timely refund. took action claims, upon expiration prescribed 6-month period, see 6532(a)(1), assessed collected erroneously. 5 tried court. statistical experts who testified that, using generally accepted techniques, they long average would subscribe. estimates ranged 14.7 Ann Arbor News 23.4 edition Bay City Times. so despite fact total almost constant during question. based actuarial factors death, relocation, changing tastes, competition media. appropriately "income approach." Under this, first present gross-revenue stream generated lives. From amount subtracted projected costs collecting revenue. contended net-revenue stream—calculated $67,773,000 one experts—was 6 all. In fact, Also, valuation, little challenging calculations. only attributable news through drive. "cost approach," 7 Government's throughout litigation represents newspapers. According Government, revenue represented very essence nondepreciable, cannot must added business disposed of, will deducted proceeds computing capital gain loss. 8 (Judge Lee Sarokin) favor. 734 F.Supp. 176 (NJ 1990). found Id., 180. further approach" itself "[O]ne distinguish between galaxy return, whose frequency unknown, quantity purchases predicted, against predicted same item, basis." 176-177. 9 Third Circuit reversed. 555 (1991). concluded erred defining remains determinable lives accounted for. 568. substantive meaning—the " 'old place' business," id., 567—and Even held 10 denied suggestion rehearing banc, two judges dissenting. App. Pet. Cert. 52a. order resolve importance settle perceived conflict,5 we granted certiorari, 503 ----, 112 1583, 118 303 (1992). II 11 Section allows deduction exhaustion wear tear, including obsolescence, property trade income. n. 1, supra. "the primary purpose" annual "to integrity periodic statements making meaningful allocation entailed use (excluding maintenance expense) periods contributes." Massey Motors, Inc. v. United States, 364 92, 104, 80 1411, 1418, 1592 (1960). part system least since 1909, Congress recognized corporation should net deducting gross "all losses actually sustained year compensated insurance otherwise, property, if any." Tariff 38 Second, 36 Stat. 11, 113. Nothing text 1909 statute implementing Treasury Decision precluded property.6 changed 1914 promulgation Treas.Regs. 33 (1914) issued 1913 Income Law.7 12 Act 1918, 234(a)(7), authorized "reasonable exhaustion, tear business, obsolescence." 40 1057, 1078 (1919). 45 (1919), promulgated 1918 Act, explicitly "may subject allowance." Art. 163. Thereafter, Regulations governing essentially unchanged. current version set forth 13 1927, "goodwill" nondepreciable.8 One said specifically: "Indeed, proposition well settled litigated recent regarding area law 'goodwill.' Houston Chronicle Publishing Co. 481 1240, 1247 (CA5 1973), cert. denied, 414 1129, 94 867, 754 (1974). III A. 14 "Goodwill" defined Department There attempts, however, devise workable definitions term. Metropolitan Bank St. Louis Dispatch 149 436, 944, 37 L.Ed. 799 (1893), example, considered newspaper's survived ceased publishing name. survive, relying Story's notable description 15 'the advantage benefit, establishment, beyond capital, stock, funds, employed therein, consequence general public patronage encouragement receives habitual account local position, common celebrity, reputation skill affluence, punctuality, accidental circumstances necessities, ancient partialities, prejudices.' 446, S.Ct., 948, quoting J. Story, Partnerships 99 (1841). 16 Des Moines Gas Moines, 238 153, 35 811, 59 1244 (1915), described good "that element inheres fixed favorable consideration arising established well-known well-conducted business." 165, 815. Los Angeles Railroad Comm'n, 289 287, 313, 53 637, 647, 77 1180 (1933) (distinguishing "going concern" "good will" fixing rates utilities). 17 Although definition different forms years, short-hand good-will patronage," Boe Commissioner, 307 339, 343 (CA9 1962), provides label identify imponderable qualities attract business. F.2d, 1248, 5. definition, assistance trying evaluate allowance. every related, greater lesser degree, expectation patronage.9 But some depreciable. Because do exhaust waste away manner establish taste socioeconomic forces cause retired service, event occur. B. Bittker & M. McMahon, Federal Taxation Individuals ¶ 12.4, p. 12-10 (1988). Intangibles patents copyrights "legal lives," statute. Covenants compete, leaseholds, estates, expressly contract. 18 category given difficulty group sometimes "customer-based intangibles." includes expirations, bank deposits, cleaning-service accounts, drugstore-prescription files, identifiable customers. patronage." B 19 When depreciated, turned "indivisible rule. certain kinds grouped single entity; individual components expire terminate time, replaced components, thereby causing minimal fluctuations measurable loss whole. following usually mass-asset: 20 "[A] terminable-at-will type indivisible indefinite, from—and of—goodwill, ultimate lies acceptance. temporary attrition expansion departure acquisition others, increase decrease requirements normal turnover merely ebb flow continuing status species, does ordinary limits give rise right deduct purposes whole equal sum fluctuating parts enjoys standing independent whole, disappearance affects interrupt destroy existence whole." Golden State Towel Linen Service, Ltd. 179 Ct.Cl. 300, 310, 373 938, 944 (1967). 21 mass-asset there doubt prior 1973 related always treated law, put rest Fifth case. taxpayer's Press, intention publication paper, lists' self-regenerating; extent furnished names addresses prospective reviewing history rule, per se whenever contrary, prevent taking "if carries his dual involved (1) accuracy." 1250. 22 Following Chronicle, ruling, modifying rulings remove implication location contracts, etc., are, possessing life." Rev.Rul. 74-456, 1974-2 Cum.Bull. 65, 66. claim nature representing structure lasting until indeterminate future." Nonetheless, acknowledged "in unusual case," "asset portion thereof possess characteristics susceptible time." Ibid. circumstances, possibility life. 23 Despite "now outdated," 561, continues guide decisions respect assets. Ithaca Industries, 97 T.C. 253 (1991), recently trained work force going concern length employee purchasing company. "whether assembled fact." 263-264. record, applied prohibit acquiring force: 24 "Although produce income, record fails show result passing use. As terminated her employment, another hired take place. might employees hiring depleted due passage rate force. An employee's leaving 267. 25 factual matter, worker he replace "who resigned, retired, fired." 268. "assembled force" nondiminishing asset; keep unchanged, training deductible expense. 271. IV 1973, clarified availability primarily sought wide variety intangibles. conclusions carefully developed records. Richard S. Miller Sons, 210 431, 537 446 (1976), entitled 1,383 expirations insurer.10 carried heavy constituted "determined facts relative experience policy involved." 443, 454. noted, "where separately requisite showing made information contained duration." 439, 452. All policies scheduled three lay renewable. Based statistics gathered 5-year mass more than purchase. Any renewals skill, integrity, original expirations. "The package demonstrably wasting asset." 444, 455. collection asset. 27 Citizens Southern Corp. 91 463 (1988), aff'd, 919 1492 (CA11 1990), bank-deposit base nine banks.11 derive balances deposit existing purchases. Commissioner deposits inextricably overall relationship, is, purchased, relationships equivalent law. rejected Commissioner's concluding demonstrated sufficient economic opportunity invest (and, indeed, was) opened closed make self-regenerating. 499. 28 "lifing studies" estimating percentage close cost-savings method, entitling difference ongoing associated maintaining alternative funding loans investments. 510. 29 reached Colorado National Bankshares, 60 TCM (CCH) 771 (1990), 984 383 (CA10 1993). 30 depend vague hope patronize unspecified future. rests probability inertia depositors leave funds 789. 31 specifically identified; accuracy; degree They "It them permits valuation." IT Iowa, 496, 509 (1991); Northern Natural O'Malley, 277 128, 139 (CA8 1960) (concurring opinion). 32 Eighth situation nearly identical now before us. Donrey, 809 534 (1987), concern. asserted simply "a machine generate advertising revenue." 536. testimony revenues compared without list." jury years; $559,406 motion judgment verdict although minds differed correct result, find taxpayer. implicitly necessarily inseparable deferred jury's value. V acknowledging "analytic cases those discussed above, "no minority strand amid phalanx cases" adopted meaning 565.12 "In case, consistent prevailing believe asserting purposes, accuracy values, nonetheless nondepreciable." context sale concern, too difficult qua relationships/structure." We agree observation. manage it. And 34 concedes: premise regulatory prohibition like stock art, raw land, determinate specific States 13. Ct.Cl., 437, 450 ("Goodwill embraces many elements presumed indefinite duration"). entire justification refusing permit evaporates, demonstrates faithful allow endeavors match expenses taxable attributable, accurate calculation purposes," INDOPCO, 1039, 1043, 117 226 (1992).13 principle depreciable, reason treating differently simple direct: 'As suffer become obsolescent, up operation depreciation, such, charged it.' Red Wing Malting Willcuts, 626, 633 (1926) (citation omitted), 273 763, 47 476, 71 879 (1927). Mertens, Law 23A.01, (1992) amortizable accuracy" (emphasis added)). follow significant "within goodwill," 19, context, succinctly articulated relevant principle: "Whether asset, exhausting, measurement." 68-483, 1968-2 91-92. hold mean imply proof insignificant. great bear. See, e.g., Coopers Lybrand Amicus Curiae ("For newsstand sales identified. [our] experience, sporadic unpredictable ascertain either (based stream)" original)). Petitioner's significantly lighter virtue strategy: "[B]ecause stipulation parties, need Dr. Glasser [its expert] correctly light stipulation, [the Government's] regard Glasser's estimation irrelevant. establishes qualified 1977." F.Supp., 181. 39 satisfaction self-regenerating, distinguishing applying rule: "[T]here automatic replacement terminates subscription. relatively constant, same, discontinued efforts newspapers." 41 date—May 1977. composed constantly components; rather, according principles. diminished time.14 C 42 Peteitioner after-tax less revenues, adding savings explained, "utilized method independently best determined thus, 183. methodology. view similar agreed valuing subscribers. approach inherently patronage—i.e., concern." 43 Both mischaracterized addresses. 67 (Price Waterhouse's Fair Market Value Study Paid Newspaper Subscribers Newspapers 1977); 108-111 (testimony Roger Grabowski, Principal Director, Price Waterhouse Valuation Services). "seasoned"; subscribed lengthy reliable source contrast last promotional incentive, here provided regular estimable irrelevant, entirely concluded: 44 possible direct soliciting newspapers, obtained comparable, terms . marginal insist wrong valuation methodology, failed offer challenge application aggregate 1977—i.e., hands hypothetical willing buyer seller, neither compulsion buy sell, both parties having knowledge facts," 185—was $67,773,000, corresponding $71,201,395. VI 46 satisfies necessary conditions qualify Code. remanded proceedings opinion. 48 ordered. 49 THE CHIEF JUSTICE, WHITE, SCALIA join, 50 seeks depreciation1 variously refers 4-5, "subscriber relationships," Tr. Oral Arg. 3. Ledger's authority regulation providing accuracy," "[n]o allowable goodwill." CFR 1.167(a)-3 (1992); 558, 567-569 (CA3 1991). raises bar deduction, arguing counts. unmistakably measurement lifespan acquired. 51 (now Ledger) bought liquidated stock's called Although, appear, misdescriptive, confuse anyone about true explained clearly got predicting people sale, advance nor term, 4, 5; ante, ____, subscribers; custom capitalized depreciate. 52 However something "goodwill," term flatly odds contention. days understood anchored "constant habitual" (1893); (1915); Cruttwell Lye, Ves.Jr. 335, 346, Eng.Rep. 129, 134 (Ch. 1810) (opinion Lord Eldon) (goodwill "nothing probability, place"). occasion provide precise regulation, appeals patronage" or, alternatively, prospect place." Winn-Dixie Montgomery, 444 677, 681 1971); Seaboard Finance 367 646, 649 1966); 1962); Dodge Brothers, 95, 101 (CA4 1941); 305-309, 941-943 (1967); Karan 319 303, 306 (CA7 1963) denotes "without contractual compulsion"). Thus, justifiably concludes own 16-19. calls relationships" Once clear, becomes equally clear lose, categorically bars uniformly relied regulation's plain language conclude 1973) (the "is 'goodwill' "), (1974); 534, 536 1987) ineligible deduction"); (1976) ("the presumption [goodwill] conclusive"); supra, ("good asset"). 54 tries slip out predicament steps. argues ought adopt cover definite estimate; then outside 12-13. makes serious mistake step; lose event, furnish second. 55 us scrap favor residual ineffable quality, business's Goodwill shrink accounting leftover. 29-30 (relying standards). 56 accommodating point, 18-19, 13, abandons construction 65 old,2 T.D. 4055, VI-2 63 (1927), repudiates interpretation section itself. all, dealing reenacted six times 1919, (1919); 1932, 23(k), 169, 181; 1934, 23(l ), 680, 689; 1936, 1648, 1660; 1938, 447, 462; 1939, 14; 1954, 167(a), 68A 351, presume understanding cognate judicial terms.3 Lorillard Pons, 434 575, 580, 98 866, 870, (1978); Correll, 389 299, 305-306, 88 445, 448-449, Helvering Winmill, 305 79, 83, 45, 46-47, 83 (1938). consequences, acceding once rejection statutory reenactment invasion political domain rewrite regulation.4 U.S., 307, (this defer "implement[s] congressional mandate manner"); Muffler Dealers Assn., 440 472, 477, 1304, 1307, 519 (1979) (listing historical considerations "particular force"); Chevron U.S.A. Resources Defense Council, 467 837, 843-845, 104 2778, 2781-2783, 81 694 (1984) (reasonable agency interpretations upheld). 57 I deny, real internal tension specific, categorical treatment analytical test (turning duration), modern techniques develop subtlety goodwill's Fortunately not, tension. 58 revision newspapers' certainty. step needed victory thus evidentiary nature, success failure function record. failed. Here, helpful recall characteristic kind depreciate: predecessor, Herald. If words, anything occurring date. existed hands. Assuming limitation presumed. Whatever habit, inertia, events influence wanes habit manifest outside, economically inert physically mortal.5 61 What concede,6 what proven, date-of-sale consequent Ledger, purported that. quite papers.7 offered witness originally witness, Gerald Glasser, predict 90-5637 (CA3), 1010. compiled received newspaper, directing survey asked selection central question: "For [newspaper] your address?" 157, 166, 182-183, 1012. He crucial assumption, remain stable 170-172, 187, 194-195. Finally, subjecting results analysis produced series figures said, Solely testimony, 176, 181 62 assumption key derived, irrelevance (or subscribers") key, turn, explicit statement presupposes. concerned (as pre-existing goodwill), level paper's insofar bearing behavior For purpose, assuming way supposing attractive sale. surrogate supposition owners rock boat succeed acting intelligently exactly been, relation competitors doubtful validity,8 management prediction inertia) combined pre-sale post-sale presumably Nowhere coextensive nowhere point finally peters measurable, hence valuable, subscribers' behavior. course, possible, am skeptical be.9 exists place one, subscriber's confirmed, (for know) replaced, performance 64 This, misses entirely. telling likely subscribe, tells nothing faithfulness. Since, faithfulness 167(a). Indeed, seen conceptually different, satisfied depreciating vanishes. confusion suggest shouldered estimat ing surprising, then, stood disturbed judgment,10 lower demonstrate 568, affirm below. Court's respectfully dissent. syllabus prepared Reporter Decisions convenience reader. Detroit Lumber 200 321, 337, 282, states: "(a) GENERAL RULE.—There shall allowed (including obsolescence) — "(1) "(2) income." 1.167(a)-(3) interprets "If known Examples copyrights. limited, depreciation. No permitted because, unsupported taxpayer, News, Times, Flint Journal, Grand Rapids Jackson Citizen Patriot, Kalamazoo Gazette, Muskegon Saginaw News. repealed 1982 somewhat 338 petitioner, 'paid intended receiving free, requesting delivery, copy connote payments advance; terminable will. Compare Circuit's ruling 1987). Department, "should loss, accrued relates, arises obsolescence uses put. formed assumed use." (1909). "estimated physical claimed, put" added). 159. Furthermore, "[a]ssets character whatever affected use, (except patents, copyrights, act." 162. Between 1919 distillers dealers Eighteenth Amendment prohibiting manufacture, transportation intoxicating liquors. T.B.R. 44, 133 1926, Circuit, provision "limits wear, property." 633. Malting, amended provide: "No will." That ever since. emphasize while "expectancy serviceable describe shibboleth dissent concedes "[t]he concerning case-by-case basis," post, ____ yet, inexplicably, suggests "[s]uch matters 4. below, beside point. "expiration" face issued. shows name insured, insurance, premium, covered "Its indication advantageous solicit renewal." 450. "deposit base" describes transaction employing bank." T.C., 465. "ascertainable 500. commentator Appeals' characterization "minority strand." Avi-Yonah, Ledger: Threat Amortizability Acquired Intangibles, Notes 981, (of cited decided prevailed them; "hardly 'overwhelming weight authority' IRS' especially victories, none taxpayers', district level"). Regardless Part IV, strand" "modern trend," reasoning persuasive. usurping proper role seeking "modify ban 10. doing kind. dissent's assume looks smells ipso facto, our view, definition. regulations, purport interpreting By "goodwill." spends worrying sufficiency evidence. problem expert, dissent, "tells faithfulness." Post, "Ledger's 167(a)." credible relevance deciding happened, skillfully vulnerabilities proof, chose, legal reject. lost trial. Black's Dictionary amortized, depreciated. 441 (6th ed. 1990); Gregorcich, Amortization Intangibles: Reassessment Treatment Purchased Goodwill, Lawyer 251, (1975) ("Amortization commonly referring property"). traced back Regulation example "definitely 2831, Treas.Dec. 214, dropped reference few response attempts brewers obsolete adoption Amendment. 2929, 3146, Treas. Dec. 402, 163 (1920) (reflecting change). subject, 626 1926), 763 Shortly decision, prohibition: 77, 203 (Revenue 1932); 86, 23(l)-3 1934); 94, )-3 1936); 103, 19.23(l (Internal 1939); (1961) 1954). provoked circuit split, resolved conflict later deciding, line brewery "exhaustion" "obsolescence" Prohibition. Clarke Haberle Crystal Springs Brewing 280 384, 155, 74 498 (1930); Renziehausen Lucas, 387, 156, 501 V. Loewers Gambrinus Brewery Anderson, 282 638, 260, 75 588 (1931) allowing buildings Prohibition). Legislative materials indicate aware H.R. Conf. Rep. 100-495, 937 (1987) reason, majority discounts consequences claiming utility Ante, nondepreciable; states Subject prohibition, basis, distinctions drawn, lists sold 36, 34; 66 (modifying earlier goodwill"). Such 568 1991) (Newark attempt, acquired). viewed others waste, Compare, "does [and] business"); Patterson 810 562, 569 (CA6 waste"); 1248 1993) "an fluctuates diminish"); Landsberger McLaughlin, 78 1928) tear) with, 100 1941) "manifest difficulties" inherent span); Illinois Cereal Mills, 1001, 1023 (1983), 83,469 P-H Memo TC "because [its] estimation"). effort insulate review, asserts concession below wants 17, 18. go far observes "[p]etitioner's strategy." strategy conceded away: determines apart [shown accompanying chart]." 180 came into play arguments: find, reasons text, rejecting argument. note litigating Springs. 386, 156 ("The allowed"). vary refer singular, singular "asset." have, seems intuitively obvious high enough dissatisfaction drive away, events, demographic changes. witnesses, noted several lead cancel subscriptions: "Subscribers lack reader interest, lifestyles, control product service reasons, media sources, radio, television, magazines paid-circulation and/or free-distribution statistician, effect, ability innumerable coming more, ones leave. discretionary turn foolish wise: foolish, destroyed rapidly; wise, maintained. recognition (and fold), underscores arbitrariness witness. support assumption. buyer's affect actual machine's durable replaced; oiled, kept weather, fuel, on. object endures just disappear inadequate maintenance. hand, rapidly everything nasty personality proprietor distaste policies. Prediction endurance fraught chance, decisions, ministerial acts (like oiling gears), account. mix influences unlikely skein untangled fro m subsequently cultivated. attempted disentanglement. "more Code," better revenues. (citing (1992)). initiatives left Congress, modify opportunities so, refused alter 102d Cong., 2d Sess., 4501 returned conference, Oct. 5, 1992) (proposing amortization 14-year period); 4210, Mar. (same); 3040, 302 Committee Finance, June (16-year 3035, 1st (1991) introduced, July 25, (14-year Res. 292, Sess. (adopted 26, 1991, 137 Cong.Rec. H11317-H11318) (concerning effective "any legislation enacted

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