International Multifoods Corporation and Affiliated Companies - Page 17

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               In a memorandum dated September 8, 1988, Mr. Suess provided            
          draft language for a provision allocating the purchase price                
          between goodwill, trademarks, and petitioner's covenant not to              
          compete.  In his memorandum, Mr. Suess stated:                              

                    In negotiating the allocation it is important to                  
               note that the amounts allocated to goodwill and the                    
               noncompete covenant, to the extent upheld upon IRS                     
               audit, will be tax-free to Multifoods.  The amount                     
               allocated to the trademarks and pending trademark                      
               applications will be subject to a tax of approximately                 
               38% in the U.S. and potentially additional taxes in the                
               countries in which such trademarks are registered.                     
               Therefore, to the extent that we can maximize the                      
               allocation to the goodwill and non-compete covenant, we                
               will maximize Multifoods' after-tax gain on the sale.                  
                    You requested that I advise you of the potential                  
               tax consequences to Duskin of the purchase price                       
               allocation.  As previously discussed, both goodwill and                
               trademarks are generally amortizable for tax purposes                  
               in Japan.  Non-compete covenants are also generally                    
               amortizable for tax purposes in Japan.  Therefore, it                  
               is possible that Duskin may be indifferent to the                      
               specific amounts allocated to each type of asset.                      
               * * *                                                                  

               On or about January 27, 1989, petitioner obtained a draft of           
          an appraisal from the Valuation Engineering Associates Division             
          of Touche Ross (Touche Ross), allocating the sale price among the           
          assets to be sold.  Duskin was not involved in the selection of             
          Touche Ross, nor did it indicate to petitioner its preferred                
               On January 31, 1989, Touche Ross submitted its final report,           
          which stated:                                                               

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