Custom Chrome, Inc. and Subsidiaries - Page 19

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          $1.199 Million Paid to Panzica, Battistella, and Navarra                    
               Amounts paid by taxpayers to employees as compensation for             
          services rendered in the current or prior years are generally               
          deductible as ordinary and necessary business expenses.  Sec.               
          162(a); Lucas v. Ox Fibre Brush Co., 281 U.S. 115, 119 (1930).              
          Amounts paid for covenants not to compete are amortized as                  
          deductions over the life of the covenants.  Warsaw Photographic             
          Associates, Inc. v. Commissioner, supra at 48.                              
               Petitioner argues that $1.199 million of the total $1.25               
          million paid to Panzica, Battistella, and Navarra ($1.25 million            
          less the $51,000 associated with the principal and interest                 
          payments on the loan petitioner received from Battistella) should           
          be treated for Federal income tax purposes as compensation paid             
          to the three employees in 1990 for services rendered to                     
          petitioner in prior years.  Petitioner argues that no portion of            
          the $1.199 million should be allocated to separate covenants not            
          to compete between petitioner and the employees.                            
               Respondent argues that the entire $1.199 million, or some              
          portion thereof, should be allocated to covenants not to compete            
          between petitioner and the employees and allowed as deductions              
          and amortized only after the covenants begin to run once the                
          employees stop working for petitioner (i.e., in years not before            
          the Court).                                                                 
               We agree with petitioner.                                              

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Last modified: May 25, 2011