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The Tax Reform Act of 1986, Pub. L. 99-514, sec. 101(a), 100
Stat. 2085, 2096, eliminated the tax rate differential between
ordinary income and capital gains. Staff of Joint Comm. on
Taxation, General Explanation of the Tax Reform Act of 1986, at
178, 181 (J. Comm. Print 1987). This lack of a tax rate
differential continued through the years at issue. Sec. 1(a),
(j).
In the case at bar, respondent has noted this lack of a tax
rate differential, and she argues that the buyers and Mr. Wright
did not have adverse tax interests when negotiating the
allocations which are the subject of this case. We agree.
Accordingly, we strictly scrutinize these allocations. Schulz v.
Commissioner, supra; Buffalo Tool & Die Manufacturing Co. v.
Commissioner, supra at 447-448; Lemery v. Commissioner, supra at
376.
In this case, the consulting agreement and the covenant not
to compete were integrated into a single agreement. We will
consider the consulting agreement and the covenant not to compete
separately to determine whether the payments were for the
purposes designated by the parties.
a. Consulting Agreement
Petitioner asserts that it should be entitled to claim
deductions for the amortization of the purchase price of the
consulting portion of the final agreement (consulting agreement).
Respondent determined that the allocation to the consulting
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