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Beyond the specific issue of the amortization of subscriber lists, the Newark Morning Ledger case, Sup. Ct., 4/20/93, will also have an effect on the ability of buyers to write off assets such as core deposits obtained by acquisition of a bank, insurance expiration lists, patient lists and customer lists obtained in the acquisition of the assets of a going business. (For the facts of the case and the Court's opinion, see the Tax Clinic item, "Supreme Court Rules Two-pronged Test Applicable When Amortizing Intangible Assets," TTA, July 1993, at 438.)

When a buyer acquires a group of diversified assets, it will be incumbent on him to establish the existence of the intangible and its useful life. The CPA must assist in evaluating the nature of the assets and allocating the purchase price on a rational basis so there is substantiation for writing off the types of assets described above. When necessary, engineers and other "experts" need to be brought in to establish the basis on which these assets are to be valued and written off. However, this presents an interesting litigation support opportunity for CPAs.

Sec. 1060 requires that a Form 8594, Asset Acquisition Statement, be attached to the income tax returns of both the buyer and seller when a group of assets that constitute a trade or business is transferred in a transaction in which the buyer's basis in the assets is determined wholly by the amount paid for the assets (without regard to Sec. 1031). The amount allocated to intangibles will need to be agreed upon by the parties and also established through credible testimony and calculations.

Also, Congress is presently considering legislation to allow intangibles, known as "Sec. 197 Intangibles," to be amortized ratably over 14 years beginning with the month of acquisition. This legislation was thought to be losing support in Congress until the Newark Morning Ledger case. The decision makes inclusion of this provision in the new tax law much more likely. Although this will obviate the need to determine useful lives, the need for an expert (such as a CPA) to identify the size and nature of the intangible asset will continue.
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Author:Marchbein, Joe
Publication:The Tax Adviser
Date:Aug 1, 1993
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