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After operating the Suzuki dealership for a short time,
petitioner terminated the Suzuki franchise because of adverse
consumer reports concerning Suzuki automobiles. Heritage Suzuki,
Inc., discontinued operations as an authorized Suzuki dealer
during January 1989, and it was merged into petitioner on March
22, 1989. Thereafter, petitioner used the Heritage Suzuki
facilities for repair services and the sale of used vehicles and
parts.
On the E.W. Richardson Dealerships' combined financial
statements dated December 31, 1988, and on petitioner's separate
financial statements dated December 31, 1989, and December 31,
1990, payment for the final agreement was treated as payment for
goodwill and was amortized on a straight-line basis over 40
years. However, the financial statement treatment was not
consistent with petitioner's income tax treatment of the
transaction.
The $675,000 allocated to the covenant not to compete was
prepaid at closing. The $675,000 allocated to the consulting
agreement was also prepaid at closing.
Petitioner attached Form 8594, Asset Acquisition Statement
Under Section 1060, to its Federal income tax return, Form 1120,
filed for the taxable year 1988. On that form, petitioner
reported $675,000 for the covenant not to compete and $675,000
for the consulting agreement as the fair market value of
intangible, amortizable assets with useful lives of 3 years. On
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