- 10 -
F.2d 562, 571 (6th Cir. 1987), affg. T.C. Memo. 1985-53; Better
Beverages, Inc. v. United States, 619 F.2d 424, 428 n.5 (5th Cir.
1980); Throndson v. Commissioner, 457 F.2d 1022, 1024-1025 (9th
Cir. 1972), affg. Schmitz v. Commissioner, 51 T.C. 306 (1968);
Annabelle Candy Co. v. Commissioner, 314 F.2d 1, 8 (9th Cir.
1962), affg. T.C. Memo. 1961-170. Thus, petitioner must prove
that Jasiak and petitioner intended for some of the payment to be
for a covenant not to compete and that the amount intended to be
paid reflected economic reality. As discussed next, we conclude
that petitioner proved neither point.
a. Whether Jasiak and Cost Less Intended To Allocate
Part of the $175,000 to Jasiak's Promise Not To
Compete
Petitioners contend that Jasiak and Cost Less intended to
allocate part of the $175,000 to his promise not to compete. We
disagree. There is no credible evidence that the parties
intended to allocate any of the $175,000 to Jasiak's promise not
to compete. Before petitioner and Jasiak signed the agreement,
Jasiak orally promised not to compete with Cost Less. They did
not discuss allocating, much less did they allocate, any part of
the $175,000 payment to Jasiak's promise not to compete.
In their written agreement, Jasiak and petitioner stated
that Cost Less was paying $35 per share for 5,000 shares, for a
total payment of $175,000. By its own terms, the agreement
superseded all others and could be modified only in writing.
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