The Charles Schwab Corporation and Subsidiaries - Page 45

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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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