Rost v. United States , 371 F. Supp. 670 ( 1973 )

Memorandum, and Order:

SINGLETON, District Judge.

The Government has brought a Motion for Partial Summary Judgment. The sole issue for purposes of the motion is whether amounts paid for insurance expirations or customer lists can be depreciated or amortized. The Government has relied on Commissioner of Internal Revenue v. Killian, 314 F.2d 852 (5th Cir. 1963) and Salome v. United States, 395 F.2d 990 (5th Cir. 1968). Killian held the policy information contained in the expiration list has goodwill and that no deduction for depreciation was allowable for goodwill. Treasury Regulation § 1.167(a)-3. Salome held that insurance expirations are in the nature of goodwill, with an indeterminate life span and therefore not subject to deduction for depreciation. The Fifth Circuit has said in its most recent opinion on the subject of § 167(a) deductions :

“[T]he precise issue is often whether or not the asset involved is either ordinary goodwill or so much like goodwill that the reasons for denying amortization deductions for goodwill are fully applicable. Foremost among those reasons is the conclusive presumption that goodwill is a non-depreciating capital asset.”

Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240, p. 1247 (5 Cir. 1973).

The Chronicle case goes on to say that although “goodwill” may be nonamortizable, as a matter of law, there are fact questions surrounding whether or not an asset is or is not “goodwill,” and further, that the important inquiry-in considering whether or not the asset is goodwill is whether or not it is “an ongoing asset that fluctuates but does not necessarily diminish” in value, 481 F.2d 1248.

The Chronicle case points out, however, that characterizing an asset as goodwill or nongoodwill is merely one way of viewing the problem. The essential fact which all such cases are trying to prove is whether or not “an asset has a limited useful life of ascertainable duration.” In both the Salome case and the Griswold case the taxpayer had failed to convince the trier of fact that the asset had a useful life of ascertainable duration.

In the instant case, when the Government filed its Motion for Summary Judgment, the taxpayers relied wholly upon the case of Blaine v. United States, 441 F.2d 917 (5th Cir. 1971). At that time Blaine was on appeal from a district court judgment for the taxpayer. The fact question of whether or not the insurance expirations had a useful life and how long that life could be said to be had been given to the jury. The jury found that an insurance expiration did have an ascertainable life span of six years. The Fifth Circuit reversed. It held that in order to bring a case outside of Killian, the taxpayer had to show that the expirations in question were legally distinguishable from those in Killian; in other words, that, unlike those in Killian, they had a “limited useful life which could be estimated with reasonable certainty.” Despite the “expert insurance testimony,” the Fifth Circuit found that there was no evidence on which the jury could base a verdict distinguishing the expirations in Blaine from those in Killian. They reversed and directed a judgment notwithstanding the verdict.

Taxpayers in this suit do not allege any facts which would take this case out of Killian. The taxpayer bought insurance expiration lists virtually identical to those in Killian. He attaches an affidavit in which he alleges as an expert that the policies represented by the list had a provision for renewal of from one to nine years. We do not see how his allegations taken as true would be any different from the expert testimony which a jury heard in the Blaine case and which the Fifth Circuit has held was insufficient to take Blaine out of Killian. In Chronicle the Fifth Circuit explained its Blaine opinion:

“[Tjaxpayer had failed to produce that quantum of evidence that would withstand a motion for judgment notwithstanding the verdict under Boeing Co. v. Shipman, 411 F.2d 365 (5th Cir. 1969) .... In other words we refused to find that the lists there involved were non-amortizable as a matter of law; to the contrary, we treated the issue as a factual question, i. e., whether the limited and ascertainable lives of the intangibles had been proven by sufficient competent evidence,” 481 F.2d 1249.

Reading Killian together with Salome and Blaine, even taking into consideration the language of Houston Chronicle just quoted, we can only hold that the taxpayer must show that the intangible in question must be shown to be more than an insurance expiration list in order to become amortizable. This the taxpayer has not done.

It is, therefore, ordered, adjudged and decreed that the Government’s Motion for Partial Summary Judgment be, and the same is hereby, granted.