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1284, 1307-1308 (1986) (both cases uphold an allocation by the
parties that resulted from arm's-length negotiations between
parties with adverse tax interests); O'Dell & Co. v.
Commissioner, supra at 468 (the adverse tax interests of the
parties to a noncompetition agreement deter allocations which
lack economic reality). Absent adverse tax interests, we
strictly scrutinize allocations to a covenant not to compete.
2. Effect of the Parties' Stipulation That Grecco's Stock in
Petitioner Was Worth $189,300
Petitioner paid Grecco $513,400 to redeem her stock and for
her covenant not to compete for 3 years. Petitioner and Grecco
allocated $383,400 of that amount to the covenant.
Respondent and petitioner agree that the value of Grecco's
redeemed stock was $189,300. The difference between petitioner's
payment to Grecco under the redemption agreement ($513,400) and
the value of the stock ($189,300) is $324,100.
Petitioner and Grecco did not have adverse tax interests
with respect to the allocation of $383,400 to the covenant.
However, Grecco and petitioner negotiated the total redemption
price at arm's length. Also, petitioner and respondent
stipulated that the stock was worth $189,300. Petitioner
contends that the remaining payments were payments for Grecco's
agreement not to compete.
Respondent misses the point of petitioner's argument by
reiterating that Grecco and petitioner did not have adverse
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