- 22 -
taking place in each of the first 3 years after the sale. The
end result was that Mr. Mitchell valued the noncompete
agreements, in the aggregate, at $2,464,752, which he rounded up
to $2.5 million.
Effect of Employment Agreements on Valuation
Respondent's main argument5 against the petitioners' expert
valuation of the noncompete agreements is that the employment
agreements entered into by Holliday and Beaurline effectively
prevented any possibility of competition for the year they were
in effect. Once the possibility of competition is eliminated for
the first year after the sale, respondent argues that even
petitioners' expert calculations would only support a value of
$400,000 for the noncompete agreements (the highest risk of
competition coming in the first year after the sale). Respondent
is mistaken.
We dealt with this argument in Peterson Mach. Tool, Inc. v.
Commissioner, 79 T.C. 72, 85 (1982) affd. 54 AFTR 2d 84-5407, 84-
2 USTC par. 9885 (10th Cir. 1984):
The fact that Moses [grantor of the covenant] signed an
employment contract with Peterson, Inc., for the
duration of his covenant not to compete is entitled to
weight, but is not determinative. Maseeh v.
Commissioner, 52 T.C. 18, 23 (1969). There was always
5 Incredibly, respondent argues that petitioners' expert
report should be ignored since it "was prepared for tax purposes
and for this specific litigation." We should hope so. See Rule
143(f). Respondent's expert report was prepared under like
circumstances.
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