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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 of
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