Heritage Auto Center, Inc. - Page 19

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          Commissioner, 52 T.C. 367, 376 (1969), affd. per curiam 451 F.2d            
          173 (9th Cir. 1971).                                                        
               When there is a difference between the tax rates applied to            
          ordinary income and capital gains, the tax interests of buyers              
          and sellers in the allocations between goodwill and covenants not           
          to compete or consulting agreements are antithetical.  In such              
          instances:                                                                  
               Sellers [prefer] allocations to goodwill because gain on a             
               sale of goodwill is capital gain, while amounts received for           
               a covenant not to compete are ordinary income.  Buyers, in             
               contrast, prefer allocations to covenants not to compete               
               because amounts so allocated can be written off over the               
               period covered by the covenant, whereas the cost of goodwill           
               is not depreciable and produces no tax benefit until the               
               goodwill is sold or lost. * * * [Bittker & Lokken, Federal             
               Taxation of Income, Estates and Gifts, par. 4.4.6, at 4-74             
               to 4-75 (2d ed. 1993).]                                                
               For years in which capital gain and ordinary income are                
          taxed at the same rate, sellers and buyers will generally lack              
          such tax adversity.  Sellers will be indifferent as to whether              
          they will be required to recognize capital gain or ordinary                 
          income, and hence may have no tax stake in the allocation between           
          goodwill and covenants not to compete or consulting agreements.6            
          Buyers, however, will still desire allocations to covenants not             
          to compete or consulting agreements, because such agreements                
          generate tax deductions.                                                    




          6    A well-noted exception is a seller who has capital losses.  See sec.   
          165(f).                                                                     




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