Chief Counsel Advice ILM 200911006 (ILM 2000-11006)
Office of Chief Counsel
Internal Revenue Service (I.R.S.)
Technical Advice Memorandum (TAM)
Release Date: March 13, 2009
Date: February 12, 2009
Section 1031 — Exchange of Property Held for Productive Use or Investment
To: Joyce L. Sugawara
Media and Entertainment Industry Counsel
From: Branch Chief, Branch 4, CC:ITA:4
(Income Tax & Accounting)
Subject: Definition of Goodwill for purposes of Section 1031 Exchanges
On January 13, 2006, the Office of Associate Chief Counsel (Income Tax & Accounting) issued technical advice (TAM 200602034) concluding that the registered trademarks and trade names of a business entity could not be of like kind to the trademarks and trade names of another business entity because they were "closely related to (if not a part of) the goodwill or going concern value of a business." Under Section 1.1031(a)-2(c)(2) of the Income Tax Regulations, the goodwill or going concern value of a business is not of like kind to the goodwill or going concern value of another business.
Using the rationale set forth in TAM 200602034, the Industry Counsel for Media (Large & Mid-Size Business) issued advice on November 2, 2007 (IRS NSAR 20074401F) concluding that (like the trademarks and trade names discussed in TAM 200602034) newspapers' mastheads, advertiser accounts and subscriber accounts were closely related to (if not a part of) the goodwill and going concern value of the newspapers. Consequently, the exchanged intangibles were not of like kind under Section 1.1031(a)-2(c)(2) and the gain from the exchange was not eligible for deferral under Section 1031 of the Internal Revenue Code. In reaching the conclusion, IRS NSAR 20074401F reasons that Newark Morning Ledger Co. v. U.S., 507 U.S. 546 (1993), which holds that an intangible asset is not goodwill for purposes of the depreciation rules if it can be separately described and valued apart from goodwill, is not relevant to the determination of whether intangibles are of like-kind under Section 1031. Upon further consideration, the Office of Associate Chief Counsel (Income Tax & Accounting) has concluded that the analysis of Newark Morning Ledger Co. applies in determining whether intangibles constitute goodwill or going concern value within the meaning of Section 1.1031(a)-2(c)(2).
Accordingly, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles that can be separately described and valued apart from goodwill qualify as like-kind property under Section 1031.
In our opinion, except in rare and unusual situations, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles can be separately described and valued apart from goodwill. Of course, to qualify as like-kind property under Section 1031, the property must satisfy all other requirements of Section 1031 including the nature and character rules of Section 1.1031(a)-2(c)(1).
Accordingly, the Service should not follow the position in TAM 200602034 and IRS NSAR 20074401F on this issue. We are available to assist should you have questions on whether intangibles are of like kind under Section 1.1031(a)-2(c)(1).
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