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Based on our limited review of information
provided to us, we allocated the $2,050,000 purchase,
as follows:
Trademarks $120,000 6%
Non-competition 820,000 40%
Goodwill 1,110,000 54%
Total $2,050,000 100%
Article IV, paragraph 3, of the purchase agreement contained the
same allocation.
In reporting its foreign and domestic source income for its
taxable year ended February 28, 1989, petitioner followed the
allocation contained in article IV of the purchase agreement.
After allocating its selling expenses among the goodwill and
trademarks sold to Duskin, petitioner reported $1,016,64313 of
foreign source income from the sale of goodwill, $820,000 of
foreign source income from the covenant not to compete, and
$109,907 of U.S. source income from the sale of the trademarks.
Petitioner did not allocate any of its selling expenses to the
sale of the covenant not to compete.
OPINION
We must determine what portion, if any, of the gain on
petitioner's sale of its Asian and Pacific Mister Donut
operations constitutes foreign source income for purposes of
13The parties have stipulated that petitioner should have
allocated selling expenses of $97,398 to goodwill, which would
have produced income in the amount of $1,012,602.
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