Custom Chrome, Inc. and Subsidiaries - Page 20

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               The evidence, although not extensive, is credible and                  
          persuasive and establishes that the $1.199 million was paid to              
          Panzica, Battistella, and Navarra as consideration for services             
          rendered in prior years and not for covenants not to compete.               
          The $1.199 million was paid in 1990, not deferred until later               
          years after the employees terminated their employment with                  
          petitioner and was based on a longstanding understanding between            
          Cruze, on the one hand, and Panzica, Battistella, and Navarra, on           
          the other, that Panzica, Battistella, and Navarra would be                  
          compensated with additional compensation for services rendered if           
          Cruze’s stock in petitioner was sold.                                       
               The bonus and noncompetition agreements did not specifically           
          allocate any of the $1.199 million to the covenants not to                  
          compete.  See Annabelle Candy Co. v. Commissioner, 314 F.2d 1, 7            
          (9th Cir. 1962), affg. per curiam T.C. Memo. 1961-170; Major v.             
          Commissioner, 76 T.C. 239, 250 (1981); Rich Hill Ins. Agency,               
          Inc. v. Commissioner, 58 T.C. 610, 617 (1972).                              
               It also appears that because Panzica, Battistella, and                 
          Navarra did not sell any stock in petitioner in connection with             
          entering into the bonus and noncompetition agreements, under                
          California law, the noncompetition clauses were unenforceable.              
          See Cal. Bus. & Prof. Code secs. 16600, 16601 (West 1997); Metro            
          Traffic Control Inc. v. Shadow Traffic Network, 27 Cal. Rptr. 2d            
          573 (Ct. App. 1994).                                                        

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