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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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