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Except for the amount of the deduction, respondent's
explanation in the 1990 notice of deficiency is identical
to that quoted above.
OPINION
Petitioner agreed to "assume" the seller's accounting
practice, which was composed of 206 enumerated clients, and
to pay the seller 25 percent of the monthly receipts from
those clients during a 48-month period. In a separate
agreement, petitioner leased the seller's office equipment
for a term of 4 years and agreed to pay $500 per month.
Petitioner also took over the seller's office by leasing
it directly from the landlord, and he hired the seller's
employees.
Petitioners claim to be entitled to deduct the monthly
payments that petitioner made to the seller during 1989 and
1990 in the amounts of $39,519 and $41,900, respectively.
Petitioners claim that the deductions are proper under
section 167(a)(1) on the ground that they represent the
amortized cost either of the seller's covenant not to
compete contained in the agreement or, alternatively, the
amortized cost of the seller's client list. Petitioners'
preferred theory is that the subject payments were made in
consideration of the covenant not to compete, the useful
life of which is established by the term of the agreement,
48 months. Petitioners argue in the alternative that the
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