3
was whether payments petitioner made to Jane Grecco (Grecco) were
for a covenant not to compete, as petitioner contended, or were
for her stock in petitioner. Petitioner had a stock purchase
agreement with its officers, including Grecco, which gave
petitioner the option to repurchase its stock owned by a
terminated employee. The agreement included a formula setting
the purchase price for the stock. Grecco negotiated a financial
settlement with petitioner under which petitioner paid Grecco
$513,400 when she ceased working for petitioner. Petitioner
treated $130,000 of this amount as payment for Grecco's stock in
petitioner and $383,400 as payment for the covenant not to
compete. Petitioner amortized $383,400 for the covenant not to
compete over 3 years.
Respondent prepared an Engineering and Valuation report,
dated July 31, 1992, which concluded that Grecco's stock in
petitioner was worth $739,000 on June 30, 1988, and the covenant
not to compete was worth $0. Respondent disallowed petitioner's
amortization deductions in full in the notice of deficiency sent
on July 15, 1993.
On April 18, 1994, petitioner's expert concluded that
Grecco's stock was worth $190,000. Petitioner's expert prepared
a stock valuation report, a copy of which respondent received on
June 24, 1994. On August 22, 1994, respondent's expert concluded
that Grecco's stock was worth $188,600 and that the covenant not
to compete was worth $52,669. On September 27, 1994, the parties
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011