Phillip M. Welch and Dorothy Ellen Welch - Page 13

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             payments are entirely allocable to the seller's client list               
             and that the client list has a useful life in petitioner's                
             business of 4 or 5 years.  Petitioners introduced expert                  
             testimony in support of their position that the useful life               
             of the client list is 4 or 5 years.                                       
                  Respondent's position is that the covenant not to                    
             compete lacked economic reality in view of the seller's age               
             and "imminent, severe and life threatening health problems"               
             that led to his death "on the operating table within 90                   
             days of the agreement."  As to petitioners' position that                 
             the payments are deductible as the amortized cost of the                  
             seller's client list, respondent introduced the testimony                 
             of an expert witness to establish that no more than 90                    
             percent of petitioner's payments to the seller are                        
             allocable to the client list and that the useful life of                  
             the client list was no less than 15 years.                                
                  Generally, section 167(a) allows as a depreciation                   
             deduction a reasonable allowance for the exhaustion, wear                 
             and tear of property used in a trade or business or held                  
             for the production of income.  Section 1.167(a)-3, Income                 
             Tax Regs., extends the depreciation deduction to intangible               
             assets which are used in the trade or business for only a                 
             limited period of time, the length of which can be                        
             determined with reasonable accuracy.  The above regulation                
             states as follows:                                                        




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