May 13, 1993
TO: TAX COMMITTEE NO. 25-93
RE: SUPREME COURT RULES THAT CUSTOMER-BASED INTANGIBLES MAY BE
AMORTIZED
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The Supreme Court recently ruled in Newark Morning Ledger
Co. v. United States that acquired customer-based intangibles
(subscription lists) which have an ascertainable value and useful
life can be separated from goodwill and amortized for tax
purposes. Under the general rule, goodwill is nonamortizable,
but intangible assets with an ascertainable life may be
amortized.
The taxpayer had taken the position that the reason that
goodwill is nonamortizable is that it has no ascertainable useful
life, and that a customer-based intangible with an ascertainable
useful life is by definition not goodwill and, therefore, can be
amortized. The Internal Revenue Service had asserted that
goodwill, and other assets indistinguishable from goodwill, such
as customer-based intangibles, are nonamortizable regardless of
whether they have an ascertainable useful life.
The Court held that the taxpayer's theory was correct.
Thus, presumably, if a customer-based intangible, such as a
management contract of a mutual fund management company, is
acquired, and the contract can be valued and its useful life
determined, the value of that contract could be amortized over
its useful life.
We will keep you informed of further developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment