Newark Morning Ledger Co. v. United States

507 U.S. 546 (1993)

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Newark Morning Ledger Co. v. United States

United States Supreme Court
507 U.S. 546 (1993)

Facts

In 1987 the Newark Morning Ledger Co. (the taxpayer) (plaintiff) merged with the Herald Company (Herald). In 1976 Herald had purchased all outstanding shares of stock from Booth Newspapers, Inc. (Booth) and subsequently merged with Booth in 1977. Herald continued publishing Booth’s eight newspapers under their old names. From 1977 to 1980, the taxpayer claimed depreciation deductions for $67.8 million on a straight-line basis, which was allocated to paid subscribers, who were individuals who regularly received the newspapers. The Internal Revenue Service (IRS) (defendant) did not allow the $67.8 million depreciation deduction, reasoning that the claimed deduction was nondepreciable as goodwill. After the 1987 merger, the taxpayer filed for a refund. At trial, the taxpayer presented an expert who testified that the value of paid subscribers was properly calculated using the income approach. The IRS did not contest the expert evidence nor the calculations and stipulated to the estimates of the useful life of paid subscribers. The IRS argued the only value attributable to the paid subscribers was the cost of generating new subscribers. Using the cost approach, the IRS estimated the value of the asset to be about $3 million. The court of appeals found in favor of the IRS and determined that the cost approach was the appropriate method to determine the value of the paid subscribers. The taxpayer appealed.

Rule of Law

Issue

Holding and Reasoning (Blackmun, J.)

Dissent (Souter, J.)

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