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a. The Danielson Rule
In Danielson, the Court of Appeals for the Third Circuit
held that a party to a contract allocating part of the purchase
price to a covenant not to compete can challenge the tax
consequences of that agreement only by presenting proof which
would be admissible in an action between the parties to the
agreement to alter that construction or to show its
unenforceability because of mistake, undue influence, fraud, or
duress. Commissioner v. Danielson, supra at 775. Not all Courts
of Appeals have adopted the Danielson rule. We do not apply it
unless the Court of Appeals to which a case could be appealed has
adopted it. Elrod v. Commissioner, 87 T.C. 1046, 1065-1066
(1986); Coleman v. Commissioner, 87 T.C. 178, 202 (1986), affd.
without published opinion 833 F.2d 303 (3d Cir. 1987); Golsen v.
Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985
(10th Cir. 1971). This case is appealable to the Court of
Appeals for the Ninth Circuit. That Court of Appeals has not
adopted the Danielson rule.2 Therefore, we do not apply it in
cases appealable to that Court of Appeals.
2 The Court of Appeals for the Ninth Circuit cited
Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), revg. and
remanding 44 T.C. 549 (1965), in Throndson v. Commissioner, 457
F.2d 1022, 1025 (9th Cir. 1972), affg. Schmitz v. Commissioner,
51 T.C. 306 (1968). In Throndson, the Court of Appeals did not
decide whether the Danielson rule applied because there was no
binding contract, which is required to apply the Danielson rule.
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