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OPINION
The sole issue in this case is how much, if any, petitioners
may deduct for the covenants not to compete. Petitioners bear
the burden of proof. Rule 142(a).
A taxpayer generally may amortize intangible assets over
their useful lives. Sec. 167(a); Citizens & S. Corp. v.
Commissioner, 91 T.C. 463, 479 (1988), affd. 919 F.2d 1492 (11th
Cir. 1990). To be amortizable, an intangible asset must have an
ascertainable value and a limited useful life, the duration of
which can be ascertained with reasonable accuracy. Newark
Morning Ledger Co. v. United States, 507 U.S. 546, 556 n.9
(1993). A covenant not to compete is an intangible asset that
has a limited useful life and, therefore, may be amortized over
its useful life. Warsaw Photographic Associates v. Commissioner,
84 T.C. 21, 48 (1985); O'Dell & Co. v. Commissioner, 61 T.C. 461,
467 (1974). We must decide if any of the amount paid for the
covenants not to compete was a disguised payment for State
Supply's stock.
The amount a taxpayer pays or allocates to a covenant not to
compete is not always controlling for tax purposes. Lemery v.
Commissioner, 52 T.C. 367, 375 (1969), affd. per curiam 451 F.2d
173 (9th Cir. 1971). We strictly scrutinize an allocation if the
parties do not have adverse tax interests because adverse tax
interests deter allocations which lack economic reality. Wilkof
v. Commissioner, 636 F.2d 1139 (6th Cir. 1981), affg. per curiam
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