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                       SUPREME COURT OF THE UNITED STATES

                                    --------
                                   No. 91-1135
                                    --------

                     NEWARK MORNING LEDGER CO. AS SUCCESSOR
                      TO THE HERALD COMPANY, PETITIONER v.                                                       ___
                                  UNITED STATES

                       ON WRIT OF CERTIORARI TO THE UNITED
                      STATES COURT OF APPEALS FOR THE THIRD
                                     CIRCUIT

                                [April 20, 1993]

  JUSTICE BLACKMUN delivered the opinion of the Court.

  This case presents the issue whether, under S167 of the Internal Revenue Code,
26 U. S. C. S167, the Internal Revenue Service (IRS) may treat as
nondepreciable an intangible asset proved to have an ascertainable value and a
limited useful life, the duration of which can be ascertained with reasonable
accuracy, solely because the IRS considers the asset to be goodwill as a matter
of law. (Ftnote. 1)        (Ftnote. 1)










                    ____________________

   1)  Section 167 states:   1)
 "(a) GENERAL RULE. - There shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear (including a reasonable
allowance for obsolescence) -
 "(1) of property used in the trade or business, or
 "(2) of property held for the production of income."
 Treasury Regulations S 1.167(a)-(3) interprets S167(a) and states:
 "If an intangible asset is known from experience or other factors to be of use
in the business or in the production of income for only a limited period, the
length of which can be estimated with reasonable accuracy, such an intangible
asset may be the subject of a depreciation allowance.  Examples are patents and
copyrights.  An intangible asset, the useful life of which is not limited, is
not subject to the allowance for depreciation.  No allowance will be permitted
merely because, in the unsupported opinion of the taxpayer, the intangible asset
has a limited useful life.  No deduction for depreciation is allowable with
respect to goodwill."  26 CFR
S1.167(a)-3 (1992).                                91-1135 - OPINION

2                  NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

                                        I
  Petitioner Newark Morning Ledger Co., a New Jersey corporation, is a newspaper
publisher.  It is the successor to The Herald Company with which it merged in
1987.  Eleven years earlier, in 1976, Herald had purchased substantially all the
outstanding shares of Booth Newspapers, Inc., the publisher of daily and Sunday
newspapers in eight Michigan communities. (Ftnote. 2)  Herald and Booth merged                                          (Ftnote. 2)
on May 31, 1977, and Herald continued to publish the eight papers under their
old names.  Tax code provisions in effect in 1977 required that Herald allocate
its adjusted income tax basis in the Booth shares among the assets acquired in
proportion to their respective fair market values at the time of the merger.
See 26 U. S. C. SS332 and 334(b)(2) (1976 ed.). (Ftnote. 3)                                                (Ftnote. 3)
  Prior to the merger, Herald's adjusted basis in the Booth shares was
approximately $328 million.  Herald allocated $234 million of this to various
financial assets (cash, securities, accounts and notes receivable, the shares of
its wholly owned subsidiary that published Parade Magazine, etc.) and tangible
assets (land, buildings, inventories, production equipment, computer hardware,
etc.).  Herald also allocated $67.8 million to an intangible asset denominated
"paid subscribers." (Ftnote. 4)  This consisted of                    (Ftnote. 4)

























                    ____________________

   2)  The eight Michigan papers were The Ann Arbor News, The Bay City Times,   2)
The Flint Journal, The Grand Rapids Press, The Jackson Citizen Patriot,
Kalamazoo Gazette, The Muskegon Chronicle, and The Saginaw News.
   3)  Section 334(b)(2) was repealed in 1982 and replaced by the somewhat   3)
different provisions of the present S338 of the Code.
   4)  According to petitioner, the term "`paid subscribers' is intended to   4)
reflect the fact that the customers in question paid for their newspapers,
rather than receiving them for free, and that they subscribed to the newspaper,
requesting regular delivery, rather than purchasing it on a single copy basis."
Brief for Petitioner 4, n. 5.  The term does not connote subscription payments
in advance; indeed, the customer relationship was terminable at will.                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                  3                                            ____

460,000 identified subscribers to the eight Booth newspapers as of May 31, 1977,
the date of merger.  These subscribers were customers each of whom had requested
that the paper be delivered regularly to a specified address in return for
payment of the subscription price.  The $67.8 million figure was petitioner's
estimate of future profits to be derived from these at-will subscribers, all or
most of whom were expected to continue to subscribe after the Herald
acquisition.  The number of "paid subscribers" was apparently an important
factor in Herald's decision to purchase Booth and in its determination of the
appropriate purchase price for the Booth shares.  See Brief for Petitioner 4-5.
After these allocations, the approximately $26.2 million remaining was allocated
to going-concern value and goodwill.
  On its federal income tax returns for the calendar years 1977-1980, inclusive,
Herald claimed depreciation deductions on a straight-line basis for the $67.8
million allocated to "paid subscribers."  The IRS disallowed these deductions on
the ground that the concept of "paid subscribers" was indistinguishable from
goodwill and, therefore, was nondepreciable under the applicable Regulations.
Herald paid the resulting additional taxes.  After the 1987 merger, petitioner
filed timely claims for refund.  The IRS took no action on the claims, and, upon
the expiration of the prescribed 6-month period, see 26 U. S. C. S6532(a)(1),
petitioner brought suit in the District of New Jersey to recover taxes and
interest that it claimed had been assessed and collected erroneously.
  The case was tried to the court.  Petitioner presented financial and
statistical experts who testified that, using generally accepted statistical
techniques, they were able to estimate how long the average at-will subscriber
of each Booth newspaper as of May 31, 1977, would continue                                91-1135 - OPINION

4                  NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

to subscribe.  The estimates ranged from 14.7 years for a daily subscriber to
The Ann Arbor News to 23.4 years for a subscriber to the Sunday edition of The
Bay City Times.  This was so despite the fact that the total number of
subscribers remained almost constant during the tax years in question.  The
experts based their estimates on actuarial factors such as death, relocation,
changing tastes, and competition from other media.  The experts also testified
that the value of "paid subscribers" was appropriately calculated using the
"income approach."  Under this, petitioner's experts first calculated the
present value of the gross-revenue stream that would be generated by these
subscriptions over their estimated useful lives.  From that amount they
subtracted projected costs of collecting the subscription revenue.  Petitioner
contended that the resulting estimated net-revenue stream -  calculated as
$67,773,000 by one of its experts - was a reasonable estimate of the value of
"paid subscribers."
  The Government did not contest petitioner's expert evidence at all.  In fact,
it stipulated to the estimates of the useful life of "paid subscribers" for each
newspaper.  Also, on valuation, the Government presented little or no evidence
challenging petitioner's calculations.  Instead, it argued that the only value
attributable to the asset in question was the cost of generating 460,000 new
subscribers through a subscription drive.  Under this "cost approach," the
Government estimated the value of the asset to be approximately $3 million.
  The Government's principal argument throughout the litigation has been that
"paid subscribers" represents an asset indistinguishable from the goodwill of
the Booth newspapers.  According to the Government, the future stream of revenue
expected to be generated by the 460,000 "paid subscribers" represented the very
essence of the goodwill value of the newspapers.  It argued that because
goodwill is nondepreciable, the value of "paid subscribers" cannot be
depreciated but must be added to basis so that,                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                  5                                            ____

when the business is disposed of, the cost of the asset will be deducted from
the proceeds in computing capital gain or loss.
  The District Court (Judge H. Lee Sarokin) ruled in petitioner's favor.  734
F. Supp. 176 (NJ 1990).  It found as a fact that the "paid subscribers" asset
was not self-regenerating - it had a limited useful life the duration of which
could be calculated with reasonable accuracy.  Id., at 180.  The court further                                               ___
found that the value of "paid subscribers" was properly calculated using the
"income approach" and that the asset itself was separate and distinct from
goodwill.  "[O]ne must distinguish between a galaxy of customers who may or may
not return, whose frequency is unknown, and whose quantity and future purchases
cannot be predicted, against subscribers who can be predicted to purchase the
same item, for the same price on a daily basis."  Id., at 176-177.                                                  ___
  The Court of Appeals for the Third Circuit reversed.  945 F. 2d 555 (1991).
It concluded that the District Court had erred in defining goodwill as that
which remains after all assets with determinable useful lives and ascertainable
values have been accounted for.  Id., at 568.  The court concluded that goodwill                                 ___
has a substantive meaning - the expectancy that "`old customers will resort to
the old place' of business," id., at 567 - and that "paid subscribers" is the                             ___
essence of goodwill.  Even though the "paid subscribers" asset may have a
limited useful life that can be ascertained with reasonable accuracy, the court
held that its value is not separate and distinct from goodwill.  Id., at 568.                                                                 ___
  The Court of Appeals denied petitioner's suggestion for rehearing in banc,
with two judges dissenting.  See App. to Pet. for Cert. 52a.  In order to
resolve an issue of substantial importance under the Internal Revenue Code                                91-1135 - OPINION

6                  NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

and to settle a perceived conflict, (Ftnote. 5) we granted certiorari, 503 U. S.                                    (Ftnote. 5)
___ (1992).

                                       II
  Section 167(a) of the Code allows as a deduction for depreciation a reasonable
allowance for the exhaustion and wear and tear, including obsolescence, of
property used in a trade or business or of property held for the production of
income.  See n. 1, supra.  This Court has held that "the primary purpose" of an                   _____
annual depreciation deduction is "to further the integrity of periodic income
statements by making a meaningful allocation of the cost entailed in the use
(excluding maintenance expense) of the asset to the periods to which it
contributes."  Massey Motors, Inc. v. United States, 364 U. S. 92, 104 (1960).                ___________________    _____________
The depreciation deduction has been a part of the federal tax system at least
since 1909, when Congress recognized that a corporation should calculate its
annual net income by deducting from gross income "all losses actually sustained
within the year and not compensated by insurance or otherwise, including a
reasonable allowance for depreciation of property, if any."  Tariff of 1909,
S38 Second, 36 Stat. 113.  Nothing in the text of the 1909 statute or in the
implementing Treasury Decision precluded a depreciation allowance for intangible
property. (Ftnote. 6)  This changed in 1914 with the promulgation of Treas.          (Ftnote. 6)
Regs. 33 (1914)























                    ____________________

   5)  Compare the Third Circuit's ruling in the present case with Donrey, Inc.   5)                                                              ____________
v. United States, 809 F. 2d 534 (CA8 1987).  See also Citizens & Southern Corp.   _____________                                      _________________________
v. Commissioner, 91 T.C. 463 (1988), aff'd, 919 F. 2d 1492 (CA11 1990).   ____________
   6)  According to the Treasury Department, the depreciation deduction "should   6)
be the estimated amount of the loss, accrued during the year to which the return
relates, in the value of the property in respect of which such deduction is
claimed that arises from exhaustion, wear and tear, or obsolescence out of the
uses to which the property is put . . . .  This estimate should be formed upon
the assumed life of the property, its cost value, and its use."  Treas. Regs.
31, Art. 4, p. 11 (1909).                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                  7                                            ____

issued under the 1913 Income Tax Law. (Ftnote. 7)                                        (Ftnote. 7)
  The Revenue Act of 1918, S234(a)(7), authorized a "reasonable allowance for
the exhaustion, wear and tear of property used in the trade or business,
including a reasonable allowance for obsolescence."  40 Stat. 1078 (1919).
Treas. Regs. 45 (1919), promulgated under the 1918 Act, explicitly recognized
that intangible assets "may be the subject of a depreciation allowance."  Art.
163.  Thereafter, the Regulations governing the depreciation of intangible
assets have remained essentially unchanged.  The current version is set forth in
n. 1, supra.      _____
  Since 1927, the IRS consistently has taken the position that "goodwill" is
nondepreciable. (Ftnote. 8)  One court has said specifically: "Indeed, this                (Ftnote. 8)
proposition is so well set-tled that the only question litigated in recent years
regarding this area of the law is whether a particular asset is `goodwill.'"
Houston Chronicle Publishing Co. v.________________________________




















                    ____________________

   7)  Treas. Regs. 33 provided explicitly that the depreciation deduction   7)
should be "estimated on the cost of the physical property with respect to which                                        _________________
such deduction is claimed, which loss results from wear and tear due to the use
to which the property is put" (emphasis added).  Art. 159.  Furthermore,
"[a]ssets of any character whatever which are not affected by use, wear and tear
(except patents, copyrights, etc.) are not subject to the depreciation allowance
authorized by this act."  Art. 162.
   8)  Between 1919 and 1927, the IRS recognized that the goodwill of   8)
distillers and dealers might be depreciable as a result of the passage of the
Eighteenth Amendment prohibiting the manufacture, sale, or transportation of
intoxicating liquors.  See T.B.R. 44, 1 Cum. Bull. 133 (1919).  But in 1926, the
Eighth Circuit, in Red Wing Malting Co. v. Willcuts, 15 F. 2d 626, cert. denied,                   ____________________    ________
273 U. S. 763 (1927), ruled that, under the plain language of the Revenue Act of
1918, goodwill could not be depreciated, for the depreciation provision "limits
the allowance for obsolescence to such property as is susceptible to exhaustion,
wear, and tear by use in the business, and good will is not such property."
Id., at 633.  Following Red Wing Malting, the Treasury Department amended its___                     ________________
Regulations to provide: "No deduction for depreciation, including obsolescence,
is allowable in respect of good will."  T.D. 4055, VI-2 Cum. Bull. 63 (1927).
That has been the position of the IRS ever since.                                91-1135 - OPINION

8                  NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

United States, 481 F. 2d 1240, 1247 (CA5 1973), cert. denied, 414 U. S. 1129_____________
(1974).

                                       III
                                        A
  "Goodwill" is not defined in the Code or in any Treasury Department
Regulations.  There have been attempts, however, to devise workable definitions
of the term.  In Metropolitan Bank v. St. Louis Dispatch Co., 149 U. S. 436                 _________________    ______________________
(1893), for example, this Court considered whether a newspaper's goodwill
survived after it was purchased and ceased publishing under its old name.  It
ruled that the goodwill did not survive, relying on Justice Story's notable
description of "goodwill" as

   "`the advantage or benefit, which is acquired by an establishment, beyond
   the mere value of the capital, stock, funds, or property employed therein, in
   consequence of the general public patronage and encouragement which it
   receives from constant or habitual customers, on account of its local
   position, or common celebrity, or reputation for skill or affluence, or
   punctuality, or from other accidental circumstances  or necessities, or even
   from ancient partialities, or prejudices.'"  Id., at 446, quoting J. Story,                                                ___
   Partnerships S99 (1841).

In Des Moines Gas Co. v. Des Moines, 238 U. S. 153 (1915), the Court described   __________________    __________
goodwill as "that element of value which inheres in the fixed and favorable
consideration of customers, arising from an established and well-known and well-
conducted business."  Id., at 165.  See also Los Angeles Co. v. Railroad Comm'n,                      ___                    _______________    _______________
289 U. S. 287, 313 (1933) (distinguishing "going concern" from "good will" when
fixing rates for public utilities).
  Although the definition of goodwill has taken different forms over the years,
the short-hand description of good-                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                  9                                            ____

will as "the expectancy of continued patronage," Boe v. Commissioner, 307 F. 2d                                                 ___    ____________
339, 343 (CA9 1962), provides a useful label with which to identify the total of
all the imponderable qualities that attract customers to the business.  See
Houston Chronicle Publishing Co. v. United States, 481 F. 2d, at 1248, n. 5. ________________________________    _____________
This definition, however, is of little assistance to a taxpayer trying to
evaluate which of its intangible assets is subject to a depreciation allowance.
The value of every intangible asset is related, to a greater or lesser degree,
to the expectation that customers will continue their
patronage. (Ftnote. 9)  But since 1918, at least some intangible assets have           (Ftnote. 9)
been depreciable.  Because intangible assets do not exhaust or waste away in the
same manner as tangible assets, taxpayers must establish that public taste or
other socioeconomic forces will cause the intangible asset to be retired from
service, and they must estimate a reasonable date by which this event will
occur.  See B. Bittker & M. McMahon, Federal Income Taxation of Individuals
(para.)12.4, p. 12-10 (1988).  Intangibles such as patents and copyrights are
depreciable over their "legal lives," which are specified by statute.  Covenants
not to compete, leaseholds, and life estates, for example, are depreciable over
their useful lives that are























                    ____________________

   9)  We emphasize that while the "expectancy of continued patronage" is a   9)
serviceable description of what we generally mean when we describe an intangible
asset that has no useful life and no ascertainable value, this shibboleth tells
us nothing about whether the asset in question is depreciable.  The dissent
concedes that "[t]he law concerning the depreciation of intangible assets
related to goodwill has developed on a case-by-case basis," post, at 6 n. 4,                                                            ____
yet, inexplicably, it suggests that "[s]uch matters are not at issue in this
case, however, because the asset that Ledger seeks to depreciate is
indistinguishable from goodwill," post, at 7, n. 4.  As we demonstrate below, an                                  ____
intangible asset with an ascertainable value and a limited useful life, the
duration of which can be ascertained with reasonable accuracy, is depreciable
under S167 of the Code.  The fact that it may also be described as the
"expectancy of continued patronage" is entirely beside the point.                                91-1135 - OPINION

10                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

expressly limited by contract.
   The category of intangibles that has given the IRS and the courts difficulty
is that group of assets sometimes denominated "customer-based intangibles."
This group includes customer lists, insurance expirations, subscriber lists,
bank deposits, cleaning-service accounts, drugstore-prescription files, and any
other identifiable asset the value of which obviously depends on the continued
and voluntary patronage of customers.  The question has been whether these
intangibles can be depreciated notwithstanding their relationship to "the
expectancy of continued patronage."
                                        B
  When considering whether a particular customer-based intangible asset may be
depreciated, courts often have turned to a "mass asset" or "indivisible asset"
rule.  The rule provides that certain kinds of intangible assets are properly
grouped and considered as a single entity; even though the individual components
of the asset may expire or terminate over time, they are replaced by new compo-
nents, thereby causing only minimal fluctuations and no measurable loss in the
value of the whole.  The following is the usually accepted description of a
mass-asset:

   "[A] purchased terminable-at-will type of customer list is an indivisible
   business property with an indefinite, nondepreciable life, indistinguishable
   from - and the principal element of - goodwill, whose ultimate value lies in
   the expectancy of continued patronage through public acceptance.  It is
   subject to temporary attrition as well as expansion through departure of some
   customers, acquisition of others, and increase or decrease in the
   requirements of individual customers.  A normal turnover of customers
   represents merely the ebb and flow of a continuing property status in this
   species, and does not within ordinary limits give rise to the right to deduct
   for tax purposes the loss of                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 11                                            ____

   individual customers.  The whole is equal to the sum of its fluctuating parts
   at any given time, but each individual part enjoys no separate capital
   standing independent of the whole, for its disappearance affects but does not
   interrupt or destroy the continued existence of the whole."  Golden State                                                                ____________
   Towel & Linen Service, Ltd. v. United States, 179 Ct. Cl. 300, 310, 373 F. 2d   ___________________________    _____________
   938, 944 (1967).

  The mass-asset rule prohibits the depreciation of certain customer-based
intangibles because they constitute self-regenerating assets that may change but
never waste.  Although there may have been some doubt prior to 1973 as to
whether the mass-asset rule required that any asset related to the expectancy of
continued patronage always be treated as nondepreciable goodwill as a matter of
law, that doubt was put to rest by the Fifth Circuit in the Houston Chronicle                                                            _________________
case.  The court there considered whether subscription lists, acquired as part
of the taxpayer's purchase of The Houston Press, were depreciable.  The taxpayer
had no intention of continuing publication of the purchased paper, so there was
no question of the lists' being self-regenerating; they had value only to the
extent that they furnished names and addresses of prospective subscribers to the
taxpayer's newspaper.  After reviewing the history of the mass-asset rule, the
court concluded that there was no per se rule that an intangible asset is                                  ___ __
nondepreciable whenever it is related to goodwill.  On the contrary, the rule
does not prevent taking a depreciation allowance "if the taxpayer properly
carries his dual burden of proving that the intangible asset involved (1) has an
ascertainable value separate and distinct from goodwill, and (2) has a limited
useful life, the duration of which can be ascertained with reasonable accuracy."
Id., at 1250.___
  Following the decision in Houston Chronicle, the IRS issued a new ruling,                            _________________
modifying prior rulings "to remove any implication that customer and
subscription lists,                                91-1135 - OPINION

12                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

location contracts, insurance expirations, etc., are, as a matter of law,
indistinguishable from goodwill possessing no determinable useful life."  Rev.
Rul. 74-456, 1974-2 Cum. Bull. 65, 66.  The IRS continued to claim that
customer-based intangibles generally are in the nature of goodwill, representing
"the customer structure of a business, their value lasting until an
indeterminate time in the future."  Nonetheless, it acknowledged that, "in an
unusual case," the taxpayer may prove that the "asset or a portion thereof does
not possess the characteristics of goodwill, is susceptible of valuation, and is
of use to the taxpayer in its trade or business for only a limited period of
time."  Ibid.  Under these circumstances, the IRS recognized the possibility        _____
that the customer-based intangible asset could be depreciated over its useful
life.
  Despite the suggestion by the Court of Appeals in this case that the mass-
asset rule is "now outdated," 945 F. 2d, at 561, it continues to guide the
decisions of the Tax Court with respect to certain intangible assets.  In Ithaca                                                                          ______
Industries, Inc. v. Commissioner, 97 T.C. 253 (1991), for example, the Tax Court________________    ____________
recently considered whether a taxpayer could depreciate the value allocated to
the trained work force of a purchased going concern over the length of time each
employee remained with the purchasing company.  The court acknowledged that
"whether the assembled work force is an intangible asset with an ascertainable
value and a limited useful life separate from goodwill or going-concern value is
a question of fact."  Id., at 263-264.  After reviewing the record, it concluded                      ___
that the mass-asset rule applied to prohibit the depreciation of the cost of
acquiring the assembled work force:

   "Although the assembled work force is used to produce income, this record
   fails to show that its value diminishes as a result of the passing of time or
   through use.  As an employee terminated his or her employment, another would
   be hired and trained to                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 13                                            ____

   take his or her place.  While the assembled work force might be subject to
   temporary attrition as well as expansion through departure of some employees
   and the hiring of others, it would not be depleted due to the passage of time
   or as a result of use.  The turnover rate of employees represents merely the
   ebb and flow of a continuing work force.  An employee's leaving does not
   interrupt or destroy the continued existence of the whole."  Id., at 267.                                                                ___

As a factual matter, the Tax Court found that the taxpayer hired a new worker
only so he could replace a worker "who resigned, retired, or was fired."  Id.,                                                                          ___
at 268.  The court found that the "assembled work force" was a nondiminishing
asset; new employees were trained in order to keep the "assembled work force"
unchanged, and the cost of the training was a deductible expense.  Id., at 271.                                                                   ___

                                       IV
  Since 1973, when Houston Chronicle clarified that the availability of the                   _________________
depreciation allowance was primarily a question of fact, taxpayers have sought
to depreciate a wide variety of customer-based intangibles.  The courts that
have found these assets depreciable have based their conclusions on carefully
developed factual records.  In Richard S. Miller & Sons, Inc. v. United States,                               ______________________________    _____________
210 Ct. Cl. 431, 537 F. 2d 446 (1976), for example, the court considered whether
a taxpayer was entitled to a depreciation deduction for 1,383 insurance
expirations that it had purchased from another
insurer. (Ftnote. 10)  The court concluded         (Ftnote. 10)

























                    ____________________

   10)  An "expiration" is a copy of the face of an insurance policy made when   10)
the policy is issued.  It shows the name of the insured, the type of insurance,
the premium, the covered property, and the expiration date.  "Its principal
value in the insurance business is its indication of the most advantageous time
to solicit a renewal."  Richard S. Miller & Sons, Inc. v. United States, 210 Ct.                        ______________________________    _____________
Cl., at 436, 537 F. 2d, at 450.                                91-1135 - OPINION

14                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

that the taxpayer had carried its heavy burden of proving that the expirations
had an ascertainable value separate and distinct from goodwill and had a limited
useful life, the duration of which could be ascertained with reasonable
accuracy.  The court acknowledged that the insurance expirations constituted a
"mass asset" the useful life of which had to be "determined from facts relative
to the whole, and not from experience with any particular policy or account
involved."  Id., at 443, 537 F. 2d, at 454.  The court also noted, however, that            ___
the mass-asset rule does not prevent a depreciation deduction "where the expira-
tions as a single asset can be valued separately and the requisite showing made
that the useful life of the information contained in the intangible asset as a
whole is of limited duration."  Id., at 439, 537 F. 2d, at 452.  All the                                ___
policies were scheduled to expire within three years, but their continuing value
lay in their being renewable.  Based on statistics gathered over a 5-year
period, the taxpayer was able to estimate that the mass asset had a useful life
of not more than 10 years from the date of purchase.  Any renewals after that
time would be attributable to the skill, integrity, and reputation of the tax-
payer rather than to the value of the original expirations.  "The package of
expirations demonstrably was a wasting asset."  Id., at 444, 537 F. 2d, at 455.                                                 ___
The court ruled that the taxpayer could depreciate the cost of the collection of
insurance expirations over the useful life of the mass asset.
  In Citizens & Southern Corp. v. Commissioner, 91 T.C. 463 (1988), aff'd, 919     _________________________    ____________
F. 2d 1492 (CA11 1990), the taxpayer argued that it was entitled to depreciate
the bank-deposit base acquired in the purchase of nine separate
banks. (Ftnote. 11)  The taxpayer sought to depreciate the present       (Ftnote. 11)























                    ____________________

   11)  The term "deposit base" describes "the intangible asset that arises in   11)
a purchase transaction representing the present value of the future stream of
income to be derived from employing the purchased core deposits of a bank."
Citizens & Southern Corp. v. Commissioner, 91 T.C., at 465.  The value of the_________________________    ____________
deposit base rests upon the "ascertainable probability that inertia will cause
depositors to leave their funds on deposit for predictable periods of time."
Id., at 500.___                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 15                                            ____

value of the income it expected to derive from the use of the balances of
deposit accounts existing at the time of the bank purchases.  The Commissioner
argued that the value of the core deposits was inextricably related to the value
of the overall customer relationship, that is, to goodwill.  The Commissioner
also argued that the deposit base consisted of purchased, terminable-at-will
customer relationships that are equivalent to goodwill as a matter of law.  The
Tax Court rejected the Commissioner's position, concluding that the taxpayer had
demonstrated with sufficient evidence that the economic value attributable to
the opportunity to invest the core deposits could be (and, indeed, was) valued
and that the fact that new accounts were opened as old accounts closed did not
make the original purchased deposit base self-regenerating.  Id., at 499.                                                               ___
  The court also concluded that, based on "lifing studies" estimating the
percentage of accounts that would close over a given period of time, the
taxpayer established that the deposit base had a limited useful life, the
duration of which could be ascertained with reasonable accuracy.  The taxpayer
had established the value of the intangible asset using the cost-savings method,
entitling it to depreciate that portion of the purchase price attributable to
the present value of the difference between the ongoing costs associated with
maintaining the core deposits and the cost of the market alternative for funding
its loans and other investments.  Id., at 510.                                  ___
  The Tax Court reached the same result in Colorado National Bankshares, Inc. v.                                           __________________________________
Commissioner, 60 TCM 771 (1990), aff'd, ___ F. 2d ___ (CA10 1993).  The Tax____________
Court                                91-1135 - OPINION

16                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

concluded that

   "the value of the deposit base does not depend upon a vague hope that
   customers will patronize the bank for some unspecified length of time in the
   future.  The value of the deposit base rests upon the ascertainable
   probability that inertia will cause depositors to leave their funds on
   deposit for predictable periods of time."  Id., at 789.                                              ___

The court specifically found that the deposit accounts could be identified; that
they had limited lives that could be estimated with reasonable accuracy; and
that they could be valued with a fair degree of accuracy.  They were also not
self-regenerating.  "It is these characteristics which separate them from
general goodwill and permits separate valuation."  Ibid.  See also IT&S of Iowa,                                                   _____           _____________
Inc. v. Commissioner, 97 T.C. 496, 509 (1991); Northern Natural Gas Co. v.____    ____________                           ________________________
O'Malley, 277 F. 2d 128, 139 (CA8 1960) (concurring opinion). ________
  The Eighth Circuit has considered a factual situation nearly identical to the
case now before us.  In Donrey, Inc. v. United States, 809 F. 2d 534 (1987), the                        ____________    _____________
taxpayer sought to depreciate the subscription list of a newspaper it had
purchased as a going concern.  The taxpayer asserted that the subscription list
was not simply a list of customers but "a machine to generate advertising
revenue."  Id., at 536.  There was expert testimony that the value of the           ___
subscription list was "the present value of the difference in advertising
revenues generated by the subscription list as compared to the revenues of an
equivalent paper without a subscription list."  Ibid.  A jury found that the                                                _____
list had a limited useful life, the duration of which could be ascertained with
reasonable accuracy; that the useful life was 23 years; and that it had an
ascertainable value of $559,406 separate and distinct from goodwill.  The
District Court denied a motion for judgment notwithstanding the verdict after                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 17                                            ____

concluding that, although reasonable minds could have differed as to the correct
result, there was evidence from which the jury could properly find for the
taxpayer.  The Court of Appeals implicitly rejected the Government's argument
that the subscription list was necessarily inseparable from the value of
goodwill when it deferred to the jury's finding that the subscription list was
depreciable because it had a determinable useful life and an ascertainable
value.

                                        V
                                        A
  Although acknowledging the "analytic force" of cases such as those discussed
above, the Court of Appeals in the present case characterized them as "no more
than a minority strand amid the phalanx of cases" that have adopted the
Government's position on the meaning of goodwill.  945 F. 2d, at
565. (Ftnote. 12)  "In any case, consistent with the prevailing case law, we     (Ftnote. 12)
believe that the IRS is correct in asserting that, for tax purposes, there are
some intangible assets that, notwithstanding that they have wasting lives that
can be estimated with reasonable accuracy and ascertainable values, are
nonetheless goodwill and nondepreciable."  Id., at 568.  The Court of Appeals                                           ___
concluded further that in "the context of the sale
























                    ____________________

   12)  At least one commentator has taken issue with the Court of Appeals'   12)
characterization of the recent cases as nothing but a "minority strand."  See
Avi-Yonah, Newark Morning Ledger:  A Threat to the Amortizability of Acquired
Intangibles, 55 Tax Notes 981, 984 (1992) (of the 14 cases cited by the Third
Circuit that were decided after Houston Chronicle in 1973, the IRS has prevailed                                _________________
in only 6 of them; "hardly an `overwhelming weight of authority' in the IRS'
favor, especially given that two of the IRS victories, but none of the
taxpayers,' were only at the district court level").  Regardless of whether the
cases discussed in Part IV, supra, are characterized as a "minority strand" or                            _____
as a "modern trend," we find their reasoning and approach persuasive.                                91-1135 - OPINION

18                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

of a going concern, it is simply often too difficult for the taxpayer and the
court to separate the value of the list qua list from the goodwill value of the                                        ___
customer relationships/structure."  Ibid.  We agree with that general                                    _____
observation.  It is often too difficult for taxpayers to separate depreciable
intangible assets from goodwill.  But sometimes they manage to do it.  And
whether or not they have been successful in any particular case is a question of
fact.
  The Government concedes: "The premise of the regula-tory prohibition against
the depreciation of goodwill is that, like stock in a corporation, a work of
art, or raw land, goodwill has no determinate useful life of specific duration."
Brief for United States 13.  See also Richard S. Miller & Sons, Inc. v. United                                      ______________________________    ______
States, 210 Ct. Cl., at 437, 537 F. 2d, at 450 ("Goodwill is a concept that em-______
braces many intangible elements and is presumed to have a useful life of
indefinite duration").  The entire justification for refusing to permit the
depreciation of goodwill evaporates, however, when the taxpayer demonstrates
that the asset in question wastes over an ascertainable period of time.  It is
more faithful to the purposes of the Code to allow the depreciation deduction
under these circum-stances, for "the Code endeavors to match expenses with the
revenues of the taxable period to which they are properly attributable, thereby
resulting in a more accurate calculation of net income for tax purposes,"
INDOPCO, Inc. v. Commissioner, 503 U. S. ___, ___ (1992) (slip op._____________    ____________
5). (Ftnote. 13)    (Ftnote. 13)



















                    ____________________

   13)  The dissent suggests that we are usurping the proper role of Congress by   13)
seeking to "modify the per se ban on depreciating goodwill," post, at 13, n. 10.                        ______                                ____
But we are doing nothing of the kind.  We simply have determined that, in light
of the factual record in this case, the "paid subscribers" asset is depreciable.
The dissent's mistake is to assume that because the "paid subscribers" asset
looks and smells like the "expectancy of continued patronage," it is, ipso                                                                      ____
facto, nondepreciable.  In our view, however, whether or not an asset is_____
depreciable is not a question to be settled by definition.  "Goodwill" remains
nondepreciable under applicable regulations, and we do not purport to change
that fact.  In interpreting those regulations, however, we have concluded that
because the "paid subscribers" is an asset found to have a limited useful life
and an ascertainable value which may be determined with reasonable accuracy, it
is depreciable.  By definition, therefore, it is not "goodwill."                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 19                                            ____

  In the case that first established the principle that goodwill was not
depreciable, the Eighth Circuit recognized that the reason for treating goodwill
differently was simple and direct:  "`As good will does not suffer wear and
tear, does not become obsolescent, is not used up in the operation of the
business, depreciation, as such, cannot be charged against it.'"  Red Wing                                                                  ________
Malting Co. v. Willcuts, 15 F. 2d 626, 633 (1926) (citation omitted), cert.___________    ________
denied, 273 U. S. 763 (1927).  See also 5 J. Mertens, The Law of Federal Income
Taxation S23A.01, p. 7 (1992) ("Goodwill is not amortizable intangible property
because its useful life cannot be ascertained with reasonable accuracy"_______
(emphasis added)).  It must follow that if a taxpayer can prove with reasonable
accuracy that an asset used in the trade or business or held for the production
of income has a value that wastes over an ascertainable period of time, that
asset is depreciable under S167, regardless of the fact that its value is
related to the expectancy of continued patronage.  The significant question for
purposes of depreciation is not whether the asset falls "within the core of the
concept of goodwill," Brief for United States 19, but whether the asset is
capable of being valued and whether that value diminishes over time.  In a
different context, the IRS itself succinctly articulated the relevant principle:
"Whether or not an intangible asset, or a tangible asset, is depreciable for
Federal income tax purposes depends upon the determination that the asset is
actually exhausting, and that such exhaustion is susceptible of measurement."
Rev. Rul.                                91-1135 - OPINION

20                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

68-483, 1968-2 Cum. Bull. 91-92.

                                        B
  Although we now hold that a taxpayer able to prove that a particular asset can
be valued and that it has a limited useful life may depreciate its value over
its useful life regardless of how much the asset appears to reflect the
expectancy of continued patronage, we do not mean to imply that the taxpayer's
burden of proof is insignificant.  On the contrary, that burden often will prove
too great to bear.  See, e.g., Brief for Coopers & Lybrand as Amicus Curiae 11                         ____                            _                                 ______ ______
("For example, customer relationships arising from newsstand sales cannot be                                                                   ______
specifically identified.  In [our] experience, customers were identified but
their purchases were too sporadic and unpredictable to reasonably ascertain
either the duration of the relationships or the value of the relationships
(based on their net income stream)" (emphasis in original)).
  Petitioner's burden in this case was made significantly lighter by virtue of
the Government's litigation strategy:

   "[B]ecause of the stipulation reached by the parties, Morning Ledger need not
   prove either the specific useful lives of the paid subscribers of the Booth
   newspapers as of May 31, 1977, or that Dr. Glasser [its statistical expert]
   has correctly estimated those lives.  In light of the stipulation, [the
   Government's] argument with regard to Dr. Glasser's estimation of the
   specific useful lives of the Booth subscribers is wholly irrelevant.
   Instead, Dr. Glasser's testimony establishes that qualified experts could
   estimate with reasonable accuracy the remaining useful lives of the paid
   subscribers of the Booth newspapers as of May 31, 1977."  734 F. Supp., at
   181.

  Petitioner also proved to the satisfaction of the District Court that the
"paid subscribers" asset was not self-regenerating, thereby distinguishing it
for purposes of                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 21                                            ____

applying the mass-asset rule:

   "[T]here is no automatic replacement for a subscriber who terminates his or
   her subscription.  Although the total number of subscribers may have or has
   remained relatively constant, the individual subscribers will not and have
   not remained the same, and those that may or have discontinued their
   subscriptions can be or have been replaced only through the substantial
   efforts of the Booth newspapers."  Id., at 180.                                      ___

The 460,000 "paid subscribers" constituted a finite set of subscriptions,
existing on a particular date - May 31, 1977.  The asset was not composed of
constantly fluctuating components; rather, it consisted of identifiable sub-
scriptions each of which had a limited useful life that could be estimated with
reasonable accuracy according to generally accepted statistical principles.
Petitioner proved as a matter of fact that the value of the "paid subscribers"
diminished over an ascertainable period of time. (Ftnote. 14)                                                 (Ftnote. 14)






















                    ____________________

   14)  The dissent spends a substantial amount of time worrying about the   14)
sufficiency of petitioner's evidence.  See post, at 7-13.  The problem with                                           ____
petitioner's expert, according to the dissent, is that he predicted only how
long a subscriber is likely to subscribe, and this "tells us nothing about how
long date-of-sale subscriber habit or inertia will remain a cause of predicted
subscriber faithfulness."  Post, at 12.  The dissent concludes that "Ledger's                           ____
expert on his own terms has not even claimed to make the showing of definite
duration necessary to depreciate an asset under S167(a)."  Post, at 12.  We                                                           ____
have little doubt that had the Government presented credible evidence
challenging the relevance of this testimony, the District Court would have had a
more difficult time deciding this case.  As it happened, however, petitioner's
evidence of the useful life of the "paid subscribers" was the only evidence the
District Court had before it.  The dissent skillfully demonstrates certain
vulnerabilities in petitioner's proof, but the Government chose, rather, to rest
its entire case on a legal argument that we now reject.  This case was lost at
trial.                                 91-1135 - OPINION

22                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

                                        C
  Petitioner estimated the fair market value of the "paid subscribers" at
approximately $67.8 million.  This figure was found by computing the present
value of the after-tax subscription revenues to be derived from the "paid sub-
scribers," less the cost of collecting those revenues, and adding the present
value of the tax savings resulting from the depreciation of the "paid
subscribers."  As the District Court explained, the taxpayer's experts "utilized
this method because they each independently concluded that this method best
determined the additional value of the Booth newspapers attributable to the
existence of the paid subscribers as of May 31, 1977, and, thus, the fair market
value of those subscribers."  Id., at 183.  The Government presented no evidence                              ___
challenging the accuracy of this methodology.  It took the view that the only
value attributable to the "paid subscribers" was equivalent to the cost of
generating a similar list of new subscribers, and it estimated that cost to be
approximately $3 million.  The Court of Appeals agreed with the Government that
this "cost approach" was the only appropriate method for valuing the list of
subscribers.  "The fact is that, when employed in the context of the sale of an
ongoing concern, the income approach to valuing a list of customers inherently
includes much or all of the value of the expectancy that those customers will
continue their patronage - i.e., the goodwill of the acquired concern."  945                           ____
F. 2d, at 568.
  Both the Government and the Court of Appeals mischaracterized the asset at
issue as a mere list of names and addresses.  The uncontroverted evidence
presented at trial revealed that the "paid subscribers" had substantial value
over and above that of a mere list of customers.  App. 67 (Price Waterhouse's
Fair Market Value Study of Paid Newspaper Subscribers to Booth Newspapers as of
May 31, 1977); id., at 108-111 (testimony of Roger J. Grabowski, Principal and               ___
National Director, Price Waterhouse Valuation Services).  These                                91-1135 - OPINION

                   NEWARK MORNING LEDGER CO. v. UNITED STATES                 23                                            ____

subscribers were "seasoned"; they had subscribed to the paper for lengthy
periods of time and represented a reliable and measurable source of revenue.  In
contrast to new subscribers, who have no subscription history and who might not
last beyond the expiration of some promotional incentive, the "paid subscribers"
at issue here provided a regular and predictable source of income over an
estimable period of time.  The cost of generating a list of new subscribers is                                                            ___
irrelevant, for it represents the value of an entirely different asset.  We
agree with the District Court when it concluded:

     "Although it was possible to estimate the direct cost of soliciting
   additional subscribers to the Booth newspapers, those subscribers if obtained
   were not and would not have been comparable, in terms of life characteristics
   or value, to the paid subscribers of the Booth newspapers as of May 31,
   1977. . . . The cost of generating such marginal subscribers would not
   reflect the fair market value of the existing subscribers of the Booth
   newspapers as of May 31, 1977."  734 F. Supp., at 181.

  Because it continued to insist that petitioner had used the wrong valuation
methodology, the Government failed to offer any evidence to challenge the
accuracy of petitioner's application of the "income approach."  The District
Court found that the aggregate fair market value of the "paid subscribers" of
the Booth newspapers as of May 31, 1977 - i.e., "the price at which the asset                                          ____
would change hands between a hypothetical willing buyer and willing seller,
neither being under any compulsion to buy or sell, both parties having
reasonable knowledge of relevant facts," id., at 185 - was $67,773,000, with a                                         ___
corresponding adjusted income tax basis of $71,201,395.  Petitioner was entitled
to depreciate this adjusted basis using a straight-line method over the
stipulated useful lives.                                91-1135 - OPINION

24                 NEWARK MORNING LEDGER CO. v. UNITED STATES                                            ____

                                       VI
  Petitioner has borne successfully its substantial burden of proving that "paid
subscribers" constitutes an intangible asset with an ascertainable value and a
limited useful life, the duration of which can be ascertained with reasonable
accuracy.  It has proved that the asset is not self-regenerating but rather
wastes as the finite number of component subscriptions are canceled over a
reasonably predictable period of time.  The relationship this asset may have to
the expectancy of continued patronage is irrelevant, for it satisfies all the
necessary conditions to qualify for the depreciation allowance under S167 of
the Code.
  The judgment of the Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
                                                               It is so ordered.                                                               ________________