Technicolor USA Holdings, Inc. v. Commissioner , 288 F. App'x 15 ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
7-28-2008
Technicolor Holdings v. Comm IRS
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-2398
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008
Recommended Citation
"Technicolor Holdings v. Comm IRS" (2008). 2008 Decisions. Paper 784.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/784
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-2398
TECHNICOLOR USA HOLDINGS, INC.,
as successor in interest to new CCI, Inc. and subsidiaries,
Appellant
v.
COMMISSIONER OF INTERNAL REVENUE
APPEAL FROM THE UNITED STATES TAX COURT
(Tax Court No. 99-14384)
Judge: Honorable Maurice B. Foley
Submitted Under Third Circuit L.A.R. 34.1(a)
July 24, 2008
Before: McKee, FUENTES and WEIS, Circuit Judges.
(Filed: July 28, 2008)
OPINION
WEIS, Circuit Judge.
Technicolor Holdings, Inc. appeals the denial of a deduction under § 165 of
the Internal Revenue Code, 26 U.S.C. § 165, for the loss of relationships with three of its
film processing customers because the Tax Court found that there was zero basis in the
1
relationships because they had no useful life.1 On appeal, Technicolor argues that the
Court erred because each of the customer relationships had a reasonably ascertainable
value. We will affirm the Tax Court’s conclusion.
The evidence here indicates that the film processing industry became
extremely competitive in the 1980's. This led to a high rate of client turnover, which
caused Technicolor to lose many of its customers despite its previous long-term
relationships. At the same time, Technicolor gained new customers. The evidence thus
shows that the long-term history of Technicolor’s customer relationships is not indicative
of their strength at the time it was acquired by Carlton Communications Plc in 1998.
We agree with the Tax Court that the client relationships at issue here had
no useful life. Any expectation that the customer relationships were likely to continue
into the future was unreasonable because of the intense competition in the film processing
market in the 1980's. See Capital Blue Cross & Subsidiaries v. Comm’r, 431 F.3d 117,
126 (3d Cir. 2005) (“[A]n at-will relationship may constitute a valuable asset if it is
reasonably likely to continue into the future.”).
We also reject Technicolor’s argument that the Tax Court’s finding was
incorrect because it failed to establish the existence of goodwill or going concern assets
other than customer relationships to account for the agreed Class IV basis. The Court
found that Technicolor “had an experienced management team, sophisticated equipment,
1
Under § 165, the amount of a deduction is limited to the taxpayer’s
adjusted basis in a lost asset. 26 U.S.C. § 165(b).
2
and proximity to the studios’ filming locations. In addition, personal relationships,
between Technicolor’s and the major film studios’ executives, facilitated client
development and retention.” The evidence supports the Commissioner’s contention that
these factors account for the Class IV basis.2
Accordingly, we will affirm the Order of the Tax Court entered April 10,
2007.
2
We need not address Technicolor’s contention that the Tax Court applied
the incorrect valuation burden and an improper standard to determine the separate values
of the relationships at issue here because we agree with the Court that they had no useful
life.
3