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bonus would have been at least $180,000 per year for each of
the following 3 years if she had stayed at petitioner.
9. Sue Spencer
In June 1988, Sue Spencer (Spencer) was one of petitioner's
top two salespeople. However, Grecco would not have tried to
hire her if Grecco had started a competing business, and Spencer
probably would not have left petitioner to work with Grecco in a
competing business. Petitioner fired Spencer in 1992, and
Colbert hired her to work at Viking Bolt.
OPINION
1. Covenant Not to Compete
a. Background
The first issue we must decide is how much, if any,
petitioner may deduct for Grecco's covenant not to compete.
Respondent argues that the covenant not to compete lacked
economic significance because the parties did not negotiate the
amount to be allocated to the covenant. Respondent contends
that the covenant was used primarily to avoid tax. Respondent
contends that the value of the covenant was $52,669. Petitioner
argues that the covenant was worth the price petitioner paid
for it under the agreement, $383,400, or, in the alternative,
$324,100, the difference between the total amount it paid Grecco
under the agreement and the value of the stock redeemed.
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