I’m taking Jerry Stoller and Mike Lieber’s words to Carlo Donida’s 1963 torcher to intro another Judge Mark V Holmes designated hitter, as he goes back to 1963 to conclude that, indeed, H R B-Delaware, Inc. & Subsidiaries, Docket No. 28129-12, filed 1/29/19, has nothing.

At least, nothing by way of franchisee rights in the multifarious successors to the two young men who formed the Best Little H&R Block Tax Prep Franchise in Texas. Way back when in 1963, before the FTC and the several States got into regulating franchises, they were simply defined by the written agreement. And that provided for cancellation by the franchisor, noncompetition from the franchisor, and that the franchise was a personal, nonassignable license.

Fast forward. The original C Corp the two young men formed became a Sub S in 2000, with heavy-duty BIG (Built-In Gain tax) if (a) the franchise rights were worth anything at that point, and (b) they subsequently unloaded the franchise rights.

As a result of a franchisee class action when franchisor tried to market its software to individuals, cutting out the franchisees, the Sub S settled out. The settlement modified the 1963 agreement in 2000 to provide that all goodwill belonged to franchisor, franchisor could buy out franchisee for a formula, allowed assignment on consent not to be unreasonably withheld, and took away any right of franchisee to retain franchisor’s name, even if franchisor breached.

H&R buys out H-R-B Delaware & Subs in 2008 for $100 million. Part of that might be capital, but the BIG gets taxed as ordinary (35% for year at issue). H-R-B Delaware claims BIG $11.9 million, IRS says $28.4 million.

But H-R-B Delaware shifts ground, says franchise rights worth zero. And wants summary J.

I’m sure by now that those of my readers who haven’t nodded out are saying “Summary J for valuing intangible intellectual property? No way.”

“Way,” says Judge Holmes.

Though IRS claims other rights besides franchise rights are involved in the sale, the SNOD gives the $28.4 million valuation and the Form 886-A says only “franchise rights.”

But here’s a hint for IRS. “This is sufficient to let us conclude that the dispute between the parties is limited to the value of those ‘franchise rights.’ (If the Commissioner does dispute the value of other intangible assets that petitioner might owe BIG tax on, we note our Rules treat motions to amend pleadings at this stage of the litigation liberally.).” Order, at p. 5 (misdesignated as number 2 in original).

The old caselaw says that where the franchisor can terminate the franchise at a date certain without breach by franchisee, and where the franchise is personal and nonassignable, the franchisee has nothing to sell.

IRS argues that providing services is different than selling goods, but that’s a nonstarter. “We don’t see how that makes a difference in the value of franchise rights, or closely associated concepts like good will and going concern. The cases don’t make this distinction and the common element in all of them is that a franchisee under these old contracts had no intangible asset of value apart from the right to do business under the franchisor’s name.” Order, at p. 7 (misdesignated as number 4 in original).

The test date for BIG is the first day of the year wherein the C Corp elected S Corp. That was before the settlement and modification of the 1963 agreement. On that date, H-R-B Delaware had nothing.

I give H-R-B Delaware’s counsel and tax planners a Taishoff “Good Job, First Class.”

Sing it, Ben E. King!