Beaver Bolt Inc. - Page 11

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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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Last modified: May 25, 2011