Heritage Auto Center, Inc. - Page 22

                                        - 22 -                                        
          Commissioner, 76 T.C. 239 (1981).  Furthermore, the fact that the           
          Mr. Wright's right to receive $225,000 per year for consulting              
          was absolute and unconditional indicates that the payment was               
          not, in substance, for consulting services.  See Coven v.                   
          Commissioner, 66 T.C. 295, 304 (1976).                                      
               There was no meaningful evidence of the negotiations which             
          resulted in the allocation of the amounts set forth in the                  
          consulting agreement.  Thus, we examine events subsequent to the            
          execution of the agreement to determine whether the allocation              
          had independent economic significance.  The minimal number of               
          consultations subsequently provided by Mr. Wright, coupled with             
          the paucity of evidence regarding the nature, scope, and value of           
          such services, indicates that the allocation of $675,000 did not            
          have an arguable relationship with business reality.  However, we           
          recognize that a reasonable person in the position of the buyers            
          would pay some consideration for a consulting agreement with Mr.            
          Wright.                                                                     
               On this record, we find that the consulting agreement had a            
          value of $1,200.  Consequently, only $1,200 of the amount                   
          allocated to the consulting agreement is properly allocable                 
          thereto.  Seaboard Fin. Co. v. Commissioner, 367 F.2d 646, 652              
          (9th Cir. 1966); Peterson Machine Tool, Inc. v. Commissioner, 79            
          T.C. 72, 86 (1982), affd. 54 AFTR 2d 84-5407, 84-2 USTC par. 9885           
          (10th Cir. 1984); cf. Concord Control, Inc. v. Commissioner, 78             
          T.C. 742 (1982).  Accordingly, petitioner may claim deductions              




Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011