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relating to the cancellation of the individual customer accounts.
The Court of Appeals for the Ninth Circuit explained as follows:
the indivisible asset rule prevents a loss deduction
when the nature of the purchased asset is such that
individual accounts cannot be accurately valued. A
taxpayer must be able to establish reasonably
accurately a basis in the particular account on which
the loss is claimed. Segregating out the goodwill is
only the first step. The taxpayer must then prove the
portion of the total purchase price allocable to the
particular account lost. * * * [Id. at 783.]
The Court of Appeals in Sunset Fuel Co. concluded that the
taxpayer’s “rule of thumb” valuation of assets for loss deduction
purposes was inadequate and that loss deductions had to be based
on the value of the separate assets. The court explained
further:
The * * * [value] of a particular account is a function
of the [expected] flow of future income * * *
discounted by the risk of discontinuance or nonpayment
of that particular account * * * a risk peculiar to
each account depending on the nature of the customer
and his future plans and prospects. Application of the
indivisible asset rule reflects the fact that, when a
relatively fungible mass of accounts is purchased, the
taxpayer cannot determine the value of each account and
establish a basis in it, but rather determines the
value of the whole using some rule of thumb technique
which discounts the income to be expected from the
whole by the risk of discontinuance [which] experience
has indicated inheres in the mass as a whole (thereby
averaging out the unique and indeterminable risks of
each account). [Id. at 783-784; fn. ref. omitted.]
In Ralph W. Fullerton Co. v. United States, 381 F. Supp.
1353 (D. Or. 1974), affd. 550 F.2d 548 (9th Cir. 1977), a
taxpayer purchased a group of insurance accounts as part of its
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