Beaver Bolt, Inc. - Page 8

                                          8                                           
          not substantially justified once respondent received the August             
          22, 1994, valuation report of its expert, which estimated that              
          Grecco's stock in petitioner was worth $188,600 as of June 30,              
          1988.  Petitioner argues that it is entitled to recover costs               
          from that time.3                                                            


               Respondent argues that petitioner intended that the purchase           
          price ($513,400) provided in petitioner's stock purchase                    
          agreement was payment solely for Grecco's stock.  Respondent                
          points out that petitioner was obligated to pay Grecco that                 
          amount even if Grecco had not agreed not to compete and even if             
          the fair market value of the stock was less than that amount.               
          Respondent maintains that the fact that petitioner and respondent           
          agreed to the fair market value for the stock did not alter the             
          fact that the allocation of any value to the covenant not to                
          compete lacked economic reality.  Respondent argues that the                
          amount allocated to the covenant not to compete did not result              
          from arm's-length negotiations.  Respondent points out that                 
          Grecco and petitioner did not have adverse tax interests with               
          respect to the allocation of $383,400 to the covenant.                      

               3 Generally, the position of the United States in the                  
          judicial proceeding is the position taken in the Commissioner's             
          answer to the petition.  Sec. 7430(c)(7)(A); Huffman v.                     
          Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part,           
          revg. in part on other grounds and remanding T.C. Memo. 1991-144.           
          Respondent filed the answer on Dec. 6, 1993.  Petitioner does not           
          contend that it is entitled to an award for litigation costs                
          incurred before Aug. 22, 1994.                                              




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  Next

Last modified: May 25, 2011