The Charles Schwab Corporation and Subsidiaries - Page 27

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          II.  Rose Issue                                                             
               A.  Background                                                         
               Petitioner acquired the outstanding shares of the stock of             
          Rose, a discount stock brokerage, from Chase.  An election was              
          made to treat the acquisition as one of assets and to apply the             
          rules under section 338 to assign the acquisition price to the              
          acquired assets.  In the amended answer, respondent asserted that           
          petitioner may not amortize the customer accounts it acquired in            
          the Rose acquisition.  If the customer accounts may be amortized,           
          we must also decide the values and useful lives of those                    
          accounts.                                                                   
               The purchase of all of the outstanding shares of Rose’s                
          stock from Chase took place on March 31, 1989.  Petitioner had no           
          interest in Rose’s business name or infrastructure.  Rose was               
          financially troubled, and its liabilities were substantial in               
          relation to the value of its fixed assets.  Rose’s liabilities              
          ($146,279,570), in a relative sense, approached the amount of its           
          short-term assets ($165,472,000), which consisted mainly of                 
          receivables.                                                                
               Petitioner, a brokerage based on the West Coast, sought to             
          acquire Rose’s customer base in order to expand petitioner’s                
          presence in the Chicago and New York markets where Rose’s                   
          operations were centered.  Petitioner had existing capacity to              
          service more customers and sought to increase its own revenues by           






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