Court Opinion

ID: 4500259
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:50.799173+00
Date Added: 2024-06-11T08:49:31.705110
License: Public Domain

*1044OPINION.
Van Fossan:
The petitioner seeks a deduction from income for either the obsolescence of good will under section 234 (a) (7) or the loss of good will under section 234 (a) (4), due to the operation of the prohibition law in the United States. That good will is not propei’ty subject to obsolescence for which a deduction may be allowed under section 234 (a) (7) has been heretofore decided. Appeal of Manhattan Brewing Co., 6 B. T. A. 952, and Red Wing Malting Co. v. Willcuts, 15 Fed. (2d) 626.
Nor do we believe a deduction as a loss is allowable. Good will has been defined as—
The advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessity or even from ancient partialities or prejudices. Metropolitan Bank v. St. Louis Dispatch Co., 149 U. S. 436, 446.
Good will, though constituting property, has no existence as an isolated or segregated capital asset. It is not tangible and does not exist, except as an incident of a going business. It is inherently part and parcel of a going and established business, and of tangible, physical property actively employed in business. It can not be separated from the business and property to which it is attached and be dealt with or disposed of separately. Its value is reflected in the value of the business and property of which it is an inseparable part, and can be realized only upon a sale of the business and property. It may be said to be nothing more than an element or factor of the value of the business and property. See Metropolitan National Bank v. St. Louis Dispatch Co., 36 Fed. 722; President Suspender Co. v. MacWilliam, 238 Fed. 159; Kaufman v. Kaufman, 239 Pa. 42; 86 Atl. 634; Commonwealth v. Kentucky Distilleries & Warehouse Co., 132 Ky. 521; 116 S. W. 766.
*1045Good will being merely an incident of a going business, inseparably attached to tangible property and incapable of segregation and independent disposition, it is difficult to conceive upon what theory an allowance for the loss of its alleged value can be made as a deduction under section 234(a) (4), independently of the tangible property or business to which it is attached. If, and when, the business or property of which the good will is an incident, is disposed of, the gain derived or the loss sustained by reason of the value, or loss of value, of the good will must of necessity be reflected in the return received from the disposition of such business or property. In the instant case the business or property was not disposed of but was continued and in use, and although its value may have been materially reduced, due to the operation of the prohibition law, no deductible loss has been sustained by the petitioner. See Frederick C. Renziehausen v. Commissioner, 8 B. T. A. 87.
In the Red Wing Malting Co. case, although it did not squarely decide whether or not a deduction for the loss of good will is allowable under section 234(a) (4), the court indicated its view upon the question:
We have heretofore pointed out that good will has no existence separate and apart from an established business. With the termination of that business it is ended. While a capital asset, it is not the subject of purchase, sale, or assignment separate from the business itself. It is not an assignable asset distinct from the business. It is different in this respect from such intangibles as patents, contracts or franchises which may be sold. When a business is disposed of its value and realized selling price may be enhanced by the existence of good will. If sold at a loss, the loss of good will is reflected in the transaction. The claim is somewhat novel, therefore, and rather startling, that loss of good will can be made the subject of an independent claim for a tax deduction, separate and distinct from the business of which it is an incident. * * * To hold that a claimant is entitled to segregate good will from the property and business to which it is attached as an incident, and from which it is inseparable, and permit a separate deduction for its loss, might result in a double deduction and have farreaching consequences. If the court is to open the door to claimants for tax deductions under the statute for the loss of good will apart from the tangible property with which it is connected, the right should clearly appear from the statute. We think it does not so appear. (15 Fed. (2d) 628, 633.)
We are of the opinion that petitioner was not entitled to a deduction from income either for. the obsolescence of good will, under section 234(a)(7), or for the loss of good will, under section 234 (a) (4).
Beviewed by the Board.

Judgment will he entered for the respondent.