- 31 -
contract rights were terminable at will and were affected by the
taxpayer’s ongoing relationship with the owners of the properties
on which the vending machines were located. Id. at 267.
The Court of Appeals for the Sixth Circuit concluded, among
other things, that because the taxpayer in Skilken v.
Commissioner, supra, had not valued each contract right
separately no loss deduction was allowable. Id. at 270-271. The
Court of Appeals was not persuaded by the fact that the
taxpayer’s valuation method represented a recognized method in
the industry for valuing contract rights associated with a
vending machine business. The Court of Appeals stated as
follows:
The rule of thumb employed by [the] taxpayer no
doubt is an accurate reflection of the average value of
vending machine locations in such circumstances. It is
not an accurate reflection, however, of the value of
any particular location. * * * [Id. at 270.]
In Sunset Fuel Co. v. United States, 519 F.2d 781 (9th Cir.
1975), a taxpayer purchased from a distributor of fuel oil a
group of customer accounts. The taxpayer valued each account
based on a formula of 4 cents for each gallon of fuel oil
purchased by the customer during the prior 12-month period. As
individual customers canceled their accounts with the taxpayer,
the taxpayer claimed loss deductions under section 165 based on
the above valuation formula. Id. at 782. Because the taxpayer
did not adequately establish a basis in each separate account,
the court denied the claimed loss deductions under section 165
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011