- 15 - its 1988 Federal income tax return, petitioner deducted $187,500 for amortization of the covenant not to compete and $187,500 for amortization of the consulting agreement for a total deduction of $375,000. In 1989 and 1990, petitioner deducted $225,000 for amortization of both the covenant not to compete and the consulting agreement for a total deduction of $450,000 each year. In the notice of deficiency, respondent disallowed petitioner's 1988 and 1989 deductions. Respondent tentatively allowed petitioner's deductions of $383,165 and $151,023 for the taxable years 1988 and 1989, respectively, for the carryback of a net operating loss (NOL) from petitioner's 1990 Federal income tax return. The NOL reported on petitioner's 1990 Federal income tax return resulted in part from deductions totaling $450,000 for amortization of the amounts allocated to the covenant not to compete and the consulting agreement. By amended answer, respondent disallowed the 1990 deductions related to the covenant not to compete and the consulting agreement, thereby reducing petitioner's NOL carrybacks to 1988 and 1989 by $450,000. Thus, respondent limited petitioner's claimed NOL for 1988 and 1989 to only $84,188 for 1988. OPINION Issue 1. Whether the Final Agreement Is Amortizable Respondent disallowed petitioner's deductions for the amortization of the final agreement. Respondent argues that the payments were, in substance, payments for the sale ofPage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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