Publication Date



Nebraska Law Review


Goodwill reflects the positive consumer association with a business. Goodwill thus overlaps with trademarks and other related assets. This close association impedes the separation of goodwill value from such related assets. Difficulties thus arise when the tax law treats goodwill more (or less) favorably than related intangible assets.For instance, the tax law previously denied any depreciation deductions for goodwill. Business buyers thus often allocated their costs away from goodwill and towards related assets like depreciable customer lists. The IRS responded with the initial “goodwill hunting” wave, challenging taxpayers’ low goodwill valuations. Congress addressed this litigious area in 1993 with new, matching depreciation rules for purchased goodwill and related intangible assets.But the goodwill hunting problem remains, albeit with reversed roles, due to other provisions which treat goodwill more favorably than other intangibles. Taxpayers now overstate goodwill with the government in defense against this second goodwill hunting wave. For instance, U.S. corporations inflate goodwill on transfers to foreign subsidiaries given a special gain avoidance rule on such transfers for goodwill. While recent regulations have lessened these particular attempts, the Treasury Department’s limited authority prevented a full response for these subsidiary transfers. In addition, similar inconsistent tax rules incentivize high goodwill claims by taxpayers to obtain either more favorable capital gains rates or better foreign tax credit usage.This Article proposes four precise fixes to counteract these negative goodwill manipulations. These changes efficiently draw upon existing tax provisions. Such utilization of tried and tested provisions counteracts the status quo bias against untested reform proposals. These four changes together forge a common theme: the pressing need for a more uniform tax treatment of goodwill and other closely-related intangibles. With these changes, Congress would restore the positive association of goodwill back to the tax law.



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University of Nebraska College of Law


corporate, corprate law, corporations, tax law



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