Beaver Bolt, Inc. - Page 9

          Respondent argues that Grecco was not concerned with the                    
          allocation of the purchase price between her stock in petitioner            
          and the covenant not to compete, and that she was only concerned            
          with the total amount she would receive when she left petitioner.           
               None of these points establish that respondent had a basis             
          in fact for continuing to contend, after August 22, 1994, that              
          the covenant not to compete was worth $52,669.  Respondent had              
          petitioner's expert's report on June 24, 1994 (3 months before              
          trial), and had respondent's expert's report on August 22, 1994             
          (one month before trial).  Respondent did not concede that the              
          covenant was worth $324,100 (or any amount more than $52,669)               
          despite the fact that (a) petitioner's expert said that Grecco's            
          stock in petitioner was worth $190,000, respondent's expert said            
          it was worth $188,600, and the parties agreed that the stock was            
          worth $189,300, and (b) respondent presented no fact or theory to           
          support the conclusion that petitioner paid the remaining                   
          $324,100 ($513,400 - 189,300 = $324,100) to Grecco for anything             
          other than the covenant not to compete.  Respondent did not offer           
          a reasonable theory for why the covenant not to compete was worth           
          less than $324,100.  Respondent's failure to reevaluate that                
          position after August 22, 1994, was unreasonable.  Frisch v.                
          Commissioner, 87 T.C. 838, 841 (1986) (the Commissioner's                   
          valuation position was unreasonable where the Commissioner had              
          the taxpayer's appraisal for 7 months before trial and did not              
          investigate further or reevaluate the Commissioner's own position           

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