Freres Lumber Co., Inc. - Page 15

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            (Sumitomo) was one of the Walker entities' customers.  Sumitomo                                
            was not a customer of petitioner before the Walker asset sale,                                 
            but was after it.                                                                              
                  The Walker entities remained obligated to perform the timber                             
            contracts that petitioner did not buy from them.  After the sale,                              
            the Walker entities owed more than $4.65 million to the                                        
            Government for timber sales.  However, the Walker entities could                               
            harvest the timber under those timber contracts and sell the                                   
                  The Walker entities agreed to terminate their employees the                              
            day before the sale.  Petitioner rehired about one-half of the                                 
            employees from the Walker entities.                                                            
                  7.     The Walkers’ Tax Court Case for Taxable Year 1988                                 
                  The Commissioner proposed adjustments to the individual tax                              
            returns of D.C. and Mary Walker and Bebout for taxable year 1988.                              
            The Commissioner determined that part of the value assigned by                                 
            each of them to the covenants not to compete should be                                         
            reallocated to land and going-concern value.  Each of them                                     
            contested the adjustments by petitioning the Tax Court, but later                              
            conceded the adjustments in full.  They each later filed amended                               
            returns to be consistent with the 1988 adjustments.  The tax                                   
            impact of the adjustments was essentially neutral.                                             

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Last modified: May 25, 2011