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value for the customer accounts and operating assets. Because of
the approach required under section 338, where cost is first
allocated to depreciable assets and then to nonamortizable
(goodwill) intangibles, Mr. Shepard’s approach is inherently
unfavorable to petitioner because it results in a larger residual
in the category of goodwill.
In spite of Rose’s unprofitability and financial
difficulties, Mr. Shepard’s approach focuses on Rose as a going
concern, including an evaluation of the goodwill connected with
the Rose name and know-how. We cannot accept Mr. Shepard’s
approach under the circumstances reflected in the record of these
cases. The facts in these cases reflect that a willing buyer
would be interested in Rose’s customers and not be interested in
Rose as a going concern. It is also unlikely that Rose, a
service business, would have had value in the form of goodwill,
because Rose’s assets, other than the large number of customer
accounts, were not unique or capable of generating income, and
the universe of theoretical willing buyers was limited to another
discount brokerage with the capacity to use a large volume of
active customers. Such a “willing buyer” would be interested in
the potential for income from the exploitation of Rose’s discount
brokerage customers and have little or no interest in the use of
the Rose name.
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