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During the years listed above, petitioner did not provide
services to the listed clients that were materially
different from the services Mr. Rahill had provided, and
petitioner did not raise his fees.
On the Schedule C for petitioner's accounting
business that is attached to petitioners' joint 1989
Federal income tax return, petitioners deducted $39,519
labeled “COVENANT NOT TO COMPETE”. Similarly, on the
Schedule C for petitioner's accounting practice that is
attached to his separate return for 1990, petitioner
deducted $41,900 labeled “COVENANT NOT TO COMPETE”.
Respondent issued a notice of deficiency to
petitioners pertaining to their joint 1989 tax return and
issued a notice of deficiency to petitioner for his 1990
tax return. In each notice, respondent disallowed the
deduction labeled “COVENANT NOT TO COMPETE”. The notice
of deficiency issued to petitioners for 1989 explains
respondent's determination as follows:
The $39,519 deducted for amortization of a
covenant not to compete is not allowed because
any value of the covenant not to compete,
included in your contract of purchase with A.C.
Rahill dated September 18, 1987, is inseparable
from the total purchase price. Accordingly,
your 1989 taxable income is increased $39,519.
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