546
OCTOBER TERM, 1992
Syllabus
certiorari to the united states court of appeals for the third circuit
No. 91-1135. Argued November 10, 1992—Decided April 20, 1993
Petitioner newspaper publisher is the successor to The Herald Company.
When, in 1976, Herald purchased substantially all the outstanding shares of Booth Newspapers, Inc., it allocated its adjusted income tax basis in the Booth shares among the assets it acquired in its merger with Booth. Among other things, it allocated $67.8 million to an intangible asset denominated "paid subscribers," a figure that was petitioner's estimate of future profits to be derived from identified subscribers to Booth's eight newspapers on the date of merger. On its federal income tax returns for 1977-1980, Herald claimed depreciation deductions for the $67.8 million, which were disallowed by the Internal Revenue Service (IRS) on the ground that the concept of "paid subscribers" was indistinguishable from goodwill and, therefore, was nondepreciable. Herald paid the taxes, and petitioner filed refund claims and ultimately brought suit in the District Court to recover taxes and interest paid. At trial, the Government did not contest petitioner's expert evidence on the methodology used to calculate its figure and stipulated to the useful life of "paid subscribers" for each newspaper. Instead, it estimated the asset's value at $3 million, the cost of generating new subscriptions, and its principal argument remained that the asset was indistinguishable from goodwill. The court ruled in petitioner's favor, finding that the asset was not self-regenerating—i. e., it had a limited useful life, the duration of which could be calculated with reasonable accuracy—that petitioner properly calculated its value, and that it was separate and distinct from goodwill. The Court of Appeals reversed, holding that even though the asset may have a limited useful life that can be ascertained with reasonable accuracy, its value is not separate and distinct from goodwill.
Held: 1. A taxpayer able to prove that a particular asset can be valued and that it has a limited useful life may depreciate its value over its useful life regardless of how much the asset appears to reflect the expectancy of continued patronage. Pp. 553-566.
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