552
Opinion of the Court
indistinguishable from the goodwill of the Booth newspapers. According to the Government, the future stream of revenue expected to be generated by the 460,000 "paid subscribers" represented the very essence of the goodwill value of the newspapers. It argued that because goodwill is nondepreciable, the value of "paid subscribers" cannot be depreciated but must be added to basis so that, when the business is disposed of, the cost of the asset will be deducted from the proceeds in computing capital gain or loss.
The District Court (Judge H. Lee Sarokin) ruled in petitioner's favor. 734 F. Supp. 176 (NJ 1990). It found as a fact that the "paid subscribers" asset was not self-regenerating—it had a limited useful life the duration of which could be calculated with reasonable accuracy. Id., at 180. The court further found that the value of "paid subscribers" was properly calculated using the "income approach" and that the asset itself was separate and distinct from goodwill. "[O]ne must distinguish between a galaxy of customers who may or may not return, whose frequency is unknown, and whose quantity and future purchases cannot be predicted, against subscribers who can be predicted to purchase the same item, for the same price on a daily basis." Id., at 176-177.
The Court of Appeals for the Third Circuit reversed. 945 F. 2d 555 (1991). It concluded that the District Court had erred in defining goodwill as that which remains after all assets with determinable useful lives and ascertainable values have been accounted for. Id., at 568. The court concluded that goodwill has a substantive meaning—the expectancy that " 'old customers will resort to the old place' of business," id., at 567—and that "paid subscribers" is the essence of goodwill. Even though the "paid subscribers" asset may have a limited useful life that can be ascertained with reasonable accuracy, the court held that its value is not separate and distinct from goodwill. Id., at 568.
The Court of Appeals denied petitioner's suggestion for rehearing in banc, with two judges dissenting. See App. to
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