International Multifoods Corporation and Affiliated Companies - Page 20

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          that the income attributable to the sale of this goodwill                   
          constitutes foreign source income pursuant to section                       
               This argument mistakes goodwill for the intangible assets              
          which embody it.  Goodwill represents an expectancy that "old               
          customers will resort to the old place" of business.  Houston               
          Chronicle Publishing Co. v. United States, 481 F.2d 1240, 1247              
          (5th Cir. 1973); Canterbury v. Commissioner, 99 T.C. 223, 247               
          (1992).  The essence of goodwill exists in a preexisting business           
          relationship founded upon a continuous course of dealing that can           
          be expected to continue indefinitely.  Canterbury v.                        
          Commissioner, supra at 247; Computing & Software, Inc. v.                   
          Commissioner, 64 T.C. 223, 233 (1975).  The Supreme Court has               
          explained that "The value of every intangible asset is related,             
          to a greater or lesser degree, to the expectation that customers            
          will continue their patronage [i.e., to goodwill]."  Newark                 
          Morning Ledger Co. v. United States, 507 U.S. 546, 556 (1993).              
          An asset does not constitute goodwill, however, simply because it           
          contributes to this expectancy of continued patronage.                      
               Section 865(d)(1) provides that income from the sale of an             
          intangible asset by a U.S. resident will generally be sourced in            
          the United States.  Section 865(d)(2) defines "intangible" to               

               15On brief, petitioner appears to concede that no goodwill             
          existed with respect to its trademarks in the nonoperating                  
          countries, since it had no franchises in those countries or                 
          customers who could "return" to Mister Donut stores.                        

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