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Jostens, Inc. v. Commissioner of Internal Revenue
Citations: 956 F.2d 175; 69 A.F.T.R.2d (RIA) 621; 1992 U.S. App. LEXIS 1387; 1992 WL 17463Docket: 90-2907
Court: Court of Appeals for the Eighth Circuit; February 5, 1992; Federal Appellate Court
Jostens, Inc. appeals a Tax Court decision regarding income tax deficiencies for the years 1980, 1981, and 1982. The Eighth Circuit Court affirms the Tax Court's findings without extensive elaboration. Firstly, Jostens argues that the Tax Court incorrectly determined it did not justify a write-down of its 'inactive' jewelry-stone inventory. To support the write-down, Jostens needed to demonstrate the stones were 'unsalable at normal prices or unusable in the normal way,' as per Treasury regulations. The Tax Court found that Jostens failed to meet this burden, noting that the inactive stones were not scrapped and were mingled with stones that were sold at normal prices, indicating the Tax Court's finding was not clearly erroneous. Secondly, Jostens contends the Tax Court erred in rejecting its method for calculating additions to its bad-debt reserve. Jostens included cancelled finance charges on past due accounts as bad debts. However, the Tax Court ruled these cancelled charges were not worthless debts, thus they could not be included in the calculation. Jostens aimed to encourage customer loyalty through this cancellation, and presented no evidence of uncollectibility. The court emphasized that a creditor cannot claim a bad debt deduction on debts voluntarily cancelled if they retain value. The Eighth Circuit agrees with the Tax Court, affirming that Jostens's cancelled finance charges did not qualify as worthless debts, and notes that such cancellations might lead to deductions under different provisions of the tax code. Jostens argued that the Tax Court should have utilized the excess earnings method to value the intangible assets acquired from the Durand Corporation, instead of the residual method it employed after determining Jostens paid fair market value for Durand. The Tax Court's decision was supported by Jostens' stipulation of a bona fide arm's-length transaction and expert testimony acknowledging Jostens' awareness of all relevant value factors. Consequently, the Tax Court's finding of fair market value was not clearly erroneous, and the residual method used for valuing Durand's intangible assets was appropriate. Additionally, Jostens claimed the Tax Court abused its discretion by denying its request to amend its petition for additional foreign tax credits, which was sought after an unexcused delay and after significant tax payments were made. The Tax Court denied the amendment based on the delay, potential prejudice to the Commissioner, and inconvenience to itself, justifying its decision without abusing discretion. Ultimately, the conclusion was that the Tax Court correctly determined Jostens's income tax deficiencies, leading to an affirmation of its ruling.