The case of Bross Trucking v Commissioner (Tax Ct. Memo LEXIS 109) was not strictly a valuation case but did address the nature of business and personal goodwill. Although the case was decided back in June, I felt that the reference to goodwill and the failure of the Scrooge-like IRS to prevail was sufficiently seasonal to merit reporting it now!
Bross Trucking was owned by Mr. Bross and provided trucking services to a group of companies owned by other members of the Bross family. The trucking company got on the wrong side of some government agencies and the family decided to form a new trucking company owned and managed by Mr. Bross' three sons which wasn't burdened with these regulatory problems. The new company actively tried to distance themselves from Bross Trucking by going so far as to cover up the Bross Trucking logo on the side of trucks bought from the old company.
The IRS claimed that Bross Trucking had distributed its goodwill and should have recognized a taxable gain and further claimed that Mr. Bross also owed gift tax as a result of this distribution.
The court found that even if Bross Tucking had once had goodwill, it had lost it due to its regulatory infractions. The fact that the new company was hiding the Bross Trucking name on the trucks showed that the goodwill had no value and possibly would have been detrimental to the new company. The new company did not take over the existing workforce and customers used the new company since it had a clean regulatory record.
As for Mr. Bross' personal goodwill, while he had developed relationships with customers, he had not transferred this to Bross Trucking. He had no employment agreement or a non-compete agreement with Bross Trucking so the company did not have the right to transfer this intangible asset to anyone.
As a result, Bross Trucking had no goodwill to transfer, no gain was realized and no gift tax was payable.
May all your interactions with the IRS in the coming year be as successful!