Court Opinion

ID: 9475750
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:36:59.62475+00
Date Added: 2024-06-11T17:44:54.313670
License: Public Domain

BRIGHT, Senior Circuit Judge,
dissenting.
I dissent.
The underlying facts in this case are undisputed. Donrey bought the Washington Times Herald for $1,335,804 on November 1, 1972. He purchased all of the paper’s assets, both tangible and intangible, and operated the paper in basically the same manner after the purchase. The sole issue is whether Donrey could depreciate the Times Herald’s subscription list for tax purposes. Resolution of the issue depends upon the characterization of the list as “goodwill” or not. If it is goodwill, the subscription does not qualify for a depreciation deduction. Treas.Reg. § 1.167(a)-3.
The majority correctly observed that the leading case addressing this issue is Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240 (5th Cir.1973), cert. denied, 414 U.S. 1129, 94 S.Ct. 867, 38 L.Ed.2d 754 (1974). In that case, the court held that a newspaper’s subscription list was a depreciable asset when publication of the paper was being discontinued. Id. at 1251. The court accurately discussed the characteristics of goodwill:
“[T]he nature of goodwill ... is the expectancy that ‘the old customers will resort to the old place.’ Commissioner of Internal Revenue v. Killian, 314 F.2d 852, 855 (C.A.5, 1963); Nelson Weaver Realty Co. v. Commissioner of Internal Revenue, 307 F.2d 897, 901 (C.A.5, 1962); Karan v. Commissioner of Internal *538Revenue, 319 F.2d 303, 306 (C.A.7, 1963). ‘[T]he essence of goodwill is the expectancy of continued patronage, for whatever reason.’ Boe v. Commissioner of Internal Revenue, 307 F.2d 339, 343 (C.A.9, 1962)____ [T]o the extent [a given item or asset] contributes to the expectancy that the old customers will resort to the old place it is an element of goodwill. Commissioner of Internal Revenue v. Seaboard Finance Co., 367 F.2d 646, 651 n. 6 (C.A.9, 1966); Boe v. Commissioner of Internal Revenue, supra, 307 F.2d at 343.
“This Court has held that ... goodwill is acquired by the purchaser of a going concern where the ‘transfer enables the purchaser' to step into the shoes of the seller.’ Balthrope v. Commissioner of Internal Revenue, 356 F.2d 28, 32 n. 1 (C.A.5, 1966); Masquellette’s Estate v. Commissioner of Internal Revenue, 239 F.2d 322, 325 (C.A.5, 1956). We have also said that goodwill is transferred where, as here, the buyer continues the seller’s business uninterrupted, using primarily the seller’s employees, and utilizing the seller’s name. Barran v. Commissioner of Internal Revenue, supra, 334 F.2d 58, 61 (C.A.5,1964). It is immaterial that the agreement did not use the term ‘goodwill,’ for ‘[t]he use of these words is, of course, not necessary if in fact what is transferred does give to the purchaser everything that can effectively aid him to step into the shoes of the seller.’ Masquelette’s Estate v. Commissioner of Internal Revenue, supra, at 325; see also Barran v. Commissioner of Internal Revenue, supra, at 61....”
Id. at 1247, quoting Winn-Dixie Montgomery, Inc. v. United States, 444 F.2d 677, 681-82 (5th Cir.1971). Therefore, it should follow from this analysis that had the Times Herald been purchased with the purpose of continuing its operation, the subscription list would be part of goodwill because it would enable “the purchaser to step into the shoes of the seller.”
This is precisely the reasoning of the district court in General Television, Inc. v. United States, 449 F.Supp. 609, 612 (D.Minn.1977), aff'd per curiam, 598 F.2d 1148 (8th Cir.1979). General Television resulted from the purchase of operators of competing community antenna television systems. The purchaser sought a depreciation allowance for the subscriber lists. The court did not allow the deduction. It reasoned:
... in the instances in which customer or subscriber lists have been determined to have an ascertainable value separate and apart from goodwill, the lists alone carried with them no expectancy of continued patronage. In the present case, what the plaintiff purchased was more than mere subscriber lists which could be used to identify potential customers; what it purchased was customer structures which included the expectancy of continued patronage. Therefore, because the purchases of the subscriber lists were actually purchases of customer structures with the expectancy of continued patronage is the essence of goodwill, the subscriber lists constitute non-depreciable goodwill.
Id. The case at hand is virtually identical to General Television.
It is clear from the record in this case that the jury relied upon expert testimony to the effect that the Times Herald’s subscription list had an independently ascertainable value. The expert witnesses constructed a scenario that separated the subscription list’s value from the value of the ongoing operation by comparing a subscription newspaper’s advertising rates with the rates of a “shopper” newspaper, a paper that is delivered free. But, this is not an apt comparison. The undisputed facts establish that the subscription list and the other assets of the newspaper were sold in one single transaction and the subscription list was not separated from the other assets. Cf. Houston. Of course, the existing subscription list will change from time to time. But, that change does not make the list a depreciable asset. The experts’ attempt to separate the subscription list *539from the goodwill must be ignored in the circumstances of this case. The facts here are not in controversy and require the conclusion, as a matter of law, that goodwill include the subscription list. We must apply the law to the undisputed facts. The expert’s opinion cannot change the tax law. Thus, the district court should have granted judgment n.o.v. in favor of the government.
Accordingly, I would reverse and enter judgment for the government.