Newark Morning Ledger Co. v. United States, 507 U.S. 546, 17 (1993)

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Opinion of the Court

The Commissioner argued that the value of the core deposits was inextricably related to the value of the overall customer relationship, that is, to goodwill. The Commissioner also argued that the deposit base consisted of purchased, terminable-at-will customer relationships that are equivalent to goodwill as a matter of law. The Tax Court rejected the Commissioner's position, concluding that the taxpayer had demonstrated with sufficient evidence that the economic value attributable to the opportunity to invest the core deposits could be (and, indeed, was) valued and that the fact that new accounts were opened as old accounts closed did not make the original purchased deposit base self-regenerating. 91 T. C., at 499.

The court also concluded that, based on "lifing studies" estimating the percentage of accounts that would close over a given period of time, the taxpayer established that the deposit base had a limited useful life, the duration of which could be ascertained with reasonable accuracy. The taxpayer had established the value of the intangible asset using the cost-savings method, entitling it to depreciate that portion of the purchase price attributable to the present value of the difference between the ongoing costs associated with maintaining the core deposits and the cost of the market alternative for funding its loans and other investments. Id., at 510.

The Tax Court reached the same result in Colorado National Bankshares, Inc. v. Commissioner, 60 TCM 771 (1990), ¶ 90,495 P-H Memo TC, aff'd, 984 F. 2d 383 (CA10 1993). The Tax Court concluded that

"the value of the deposit base does not depend upon a vague hope that customers will patronize the bank for some unspecified length of time in the future. The value of the deposit base rests upon the ascertainable probability that inertia will cause depositors to leave their funds on deposit for predictable periods of time."

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