- 10 - Generally, when the Commissioner presents evidence which, if credited by the Court, is sufficient to support a decision in the Commissioner's favor, there will be a reasonable basis for the Commissioner's position. See Wilfong v. United States, 991 F. 2d 359, 369 (7th Cir. 1993). From the onset of the underlying actions, respondent questioned the valuation of the covenant not to compete. Respondent was primarily concerned with how the total amount paid to Brigitte was allocated between the stock redemption price and the covenant not to compete. Such concern is clearly legitimate. There has been a great deal of litigation involving the allocation of a purchase price to a covenant not to compete. See, e.g., Throndson v. Commissioner, 457 F.2d 1022, 1024 (9th Cir. 1972), affg. Schmitz v. Commissioner, 51 T.C. 306 (1968); Commissioner v. Danielson, 378 F.2d 771, 775 (3d Cir. 1967), vacating and remanding 44 T.C. 549 (1965); Ullman v. Commissioner, 264 F.2d 305, 307-308 (2d Cir. 1959), affg. 29 T.C. 129 (1957); Major v. Commissioner, 76 T.C. 239 (1981). The principal inquiry has been whether the amount allocated to the covenant not to compete reflected business reality or whether that amount was artificially allocated to such covenant solely for tax purposes. Covenants not to compete are intangible capital assets and their cost may be amortized over their useful lives. See Peterson Machine Tool, Inc. v. Commissioner, 79 T.C. 72, 80Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011