Academic journal article Journal of Accountancy

Third Circuit Reverses Newark Morning Ledger

Academic journal article Journal of Accountancy

Third Circuit Reverses Newark Morning Ledger

Article excerpt

How to amortize acquired intangible assets has become the principal tax issue of 1991. It is ironic that legislation was recently proposed to standardize amortization practices in response to IRS court defeats. But before the ink had dried on the proposal, the IRS began to secure important court victories. It is now possible an emboldened IRS will withdraw its support for the legislation.

In Newark Morning Ledger Co. (3rd Cir. 1991), a chain of newspapers was acquired, and the taxpayer assigned a portion of the purchase price to an asset called "paid subscribers." This asset represented the profits to be derived from the "at will" subscribers acquired, most of whom were expected to continue after the acquisition.

To sustain amortization, the asset had to be distinguished from goodwill. The taxpayer contended it had only to meet a two-part test to show the asset was not the equivalent of goodwill: that it possessed a limited useful life and had an ascertainable value.

The IRS, however, argued that the test had three parts and the taxpayer failed to satisfy the third prong: that ascertainable value had to be distinct from goodwill. …

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