Goodwill Hunting Gone Bad: Tax Law’s Outmoded Treatment of Goodwill

I. Introduction II. Governmental Goodwill Hunting Before 1993 ... A. General Description of Pre-1993 Dynamic and § 197 ... B. Two Illustrative Examples ... 1. Example 1: Former Baseball Commissioner Bud Selig’s Tax Case ... 2. Example 2: Sale of Bud’s Bar & Grill ... C. Summary III. Goodwill Hunting Gone Bad: Taxpayers Now Hunt ... A. Goodwill Hunting on Transfers to Foreign Subsidiaries ... B. Goodwill Hunting for Foreign Tax Credits ... 1. Example 1A: Bud Selig’s Tax Case ... 2. Example 2A: Bud’s London Bar & Grill ... C. Seller’s Goodwill Incentives for Capital Gains ... 1. Contingent “Earn Outs” ... a. Example 1B: Bud Selig’s Tax Case ... b. Example 2B: Sale of Bud’s Bar & Grill ... 2. Fixed-Consideration Incentives IV. Responses to Goodwill Hunting Gone Bad ... A. Replace Goodwill Sourcing Exception with Foreign Taxation ... 1. Underlying Goals of § 865(d)(2) and (d)(3) ... 2. Goodwill as a Poor Proxy for Real Goal … 3. Substitute Actual Taxation and Link to Treaty Rules ... B. Franchise Attack Gone Bad: Drop Trademarks from § 1253 ... 1. Congressional Motivation: Split-Interest Franchises ... 2. Inconsistency and Practical Allocation Issues ... 3. Subsequent Changes Leave One-Sided Punitive Regime ... 4. Discontinuities in Trademark Litigation ... 5. Summary ... C. Business Sale Override of §§ 1221(a)(3) and 1235 V. Conclusion