554
Opinion of the Court
1914 with the promulgation of Treas. Regs. 33 (1914) issued under the 1913 Income Tax Law.7
The Revenue Act of 1918, § 234(a)(7), authorized a "reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence." 40 Stat. 1078 (1919). Treasury Regs. 45 (1919), promulgated under the 1918 Act, explicitly recognized that intangible assets "may be the subject of a depreciation allowance." Art. 163. Thereafter, the regulations governing the depreciation of intangible assets have remained essentially unchanged. The current version is set forth in n. 1, supra.
Since 1927, the IRS consistently has taken the position that "goodwill" is nondepreciable.8 One court has said specifically: "Indeed, this proposition is so well settled that the only question litigated in recent years regarding this area of the law is whether a particular asset is 'goodwill.' " Hous-7 Treasury Regs. 33 provided explicitly that the depreciation deduction should be "estimated on the cost of the physical property with respect to which such deduction is claimed, which loss results from wear and tear due to the use to which the property is put" (emphasis added). Art. 159. Furthermore, "[a]ssets of any character whatever which are not affected by use, wear and tear (except patents, copyrights, etc.) are not subject to the depreciation allowance authorized by this act." Art. 162.
8 Between 1919 and 1927, the IRS recognized that the goodwill of distillers and dealers might be depreciable as a result of the passage of the Eighteenth Amendment prohibiting the manufacture, sale, or transportation of intoxicating liquors. See T. B. R. 44, 1 Cum. Bull. 133 (1919). But in 1926, the Eighth Circuit, in Red Wing Malting Co. v. Willcuts, 15 F. 2d 626, cert. denied, 273 U. S. 763 (1927), ruled that, under the plain language of the Revenue Act of 1918, goodwill could not be depreciated, for the depreciation provision "limits the allowance for obsolescence to such property as is susceptible to exhaustion, wear, and tear by use in the business, and good will is not such property." 15 F. 2d, at 633. Following Red Wing Malting, the Treasury Department amended its regulations to provide: "No deduction for depreciation, including obsolescence, is allowable in respect of good will." T. D. 4055, VI-2 Cum. Bull. 63 (1927). That has been the position of the IRS ever since.
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