- 27 -
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
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011