- 23 -
for the amortization of $1,200 over the term of the consulting
agreement. With respect to the remaining portion of the amount
allocated to the consulting agreement, we affirm respondent's
determination.
b. Covenant Not To Compete
Turning to the covenant not to compete contained in the
final agreement (covenant), petitioner argues that it is entitled
to claim deductions for the amortization of the amounts paid for
the covenant. Respondent argues that such deductions are not
allowable.
We believe that the buyers were genuinely concerned that Mr.
Wright would recruit employees from the Totem Lake dealerships to
work in his Chevrolet-Nissan dealership. Furthermore, we believe
that the buyers were concerned that Mr. Wright would obtain
employment from one of the 21 Ford or 19 Toyota dealerships in
the Seattle, Washington, area, where he could use his industry
contacts and experience to the detriment of the buyers. These
two findings are probative of the economic substance of the
covenant. O'Dell & Co. v. Commissioner, 61 T.C. at 469. In
addition, the fact that the covenant appears to be genuinely but
realistically restrictive, extending over a 50-mile area for a
period of 3 years, indicates that the covenant had independent
economic significance. Schulz v. Commissioner, supra at 54;
O'Dell & Co. v. Commissioner, supra at 469.
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011