- 17 -
(1960); Buffalo Tool & Die Manufacturing Co. v. Commissioner,
74 T.C. 441, 447-448 (1980). Further, taxpayers generally bear
the burden of proving entitlement to claimed deductions. Rule
142(a).
Respondent argues primarily that the covenant not to compete
by Cruze lacks economic reality and that the $5 million paid to
Cruze constitutes a nondeductible capital expenditure for the
goodwill or going concern value of petitioner. Respondent
emphasizes that JC Investors, petitioner, and Cruze did not have
adverse tax interests and that the terms of the covenant were not
separately negotiated. Respondent notes Cruze's testimony that
he would have been "pretty silly" to sell his company and then
spend his money trying to compete with it.
If we conclude that the covenant not to compete should be
respected for Federal income tax purposes, respondent argues that
the proper amount to be allocated to the covenant is $2.3
million, not the $5 million claimed by petitioner.
Petitioner argues that the covenant not to compete reflects
economic reality and that the entire $5 million paid to Cruze
with regard thereto should be respected. Petitioner emphasizes
Cruze's management talents, knowledge of the industry, business
contacts, financial resources, and general ability to compete
with petitioner.
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