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Respondent argues that the allocation of $675,000 of the
purchase price to the covenant lacked economic significance,
noting that Mr. Wright's reputation was so tarnished as to
effectively eliminate him as a competitive threat. Although we
agree that Mr. Wright's reputation was tarnished, we nonetheless
believe that the buyers were genuinely concerned that he could be
a competitive threat. We believe that a reasonable person in the
position of the buyers would bargain for a noncompetition
agreement from Mr. Wright. See Schulz v. Commissioner, supra at
55. However, taking into account that Mr. Wright suffered such
extensive adverse publicity, we do not believe that an allocation
of $675,000 is supportable on this record.
We find that the noncompetition covenant had a value of
$337,500. Therefore, $337,500 of the amount allocated to the
covenant is properly allocable thereto. Seaboard Fin. Co. v.
Commissioner, supra at 652; Peterson Machine Tool, Inc. v.
Commissioner, supra at 86; cf. Concord Control, Inc. v.
Commissioner, supra. Accordingly, petitioner may claim
deductions for the amortization of $337,500 over the term of the
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