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proposition that the value of (and amount paid for) the stock in
Cost Less is its book value, leaving the rest of the $175,000
payment from Cost Less to Jasiak to be allocated to the covenant
not to compete. We disagree.
In Standard Lumber & Hardware Co., the partners had a
written partnership agreement which stated that the remaining
partners would pay a withdrawing partner an amount equal to the
book value ($32,587.22) of his partnership interest. The
partners had an oral agreement that any departing partner would
not compete against the partnership. The partners signed a
dissolution agreement. The remaining partners paid the
withdrawing partner $70,000 by check. The dissolution agreement
and check said that the $70,000 was for the withdrawing partner’s
interest in the partnership. Neither the dissolution agreement
nor the certified check mentioned a covenant not to compete. The
remaining partners continued to operate the business and did not
amortize the covenant. A successor corporation filed an amended
return and amortized part of the $70,000 as the cost of the
covenant. We found that $37,412.78 (the difference between
$32,587.22 and $70,000) was intended to be paid for the covenant
not to compete.
Here, in contrast, Jasiak specifically rejected any payment
for his promise not to compete, and he specifically rejected
being paid for his stock based on the book value of his stock.
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