Sharewell, Inc. - Page 11




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                                       OPINION                                        
               The issue in this case is whether petitioner obtained a                
          covenant not to compete that is valid for Federal income tax                
          purposes.  A covenant not to compete is an intangible asset that            
          may be amortized over its useful life.  See Warsaw Photographic             
          Associates, Inc. v. Commissioner, 84 T.C. 21, 48 (1985).  Seeking           
          the benefit of amortization deductions, petitioner argues that              
          $300,000 of the $1.3 million in cash and receivables paid to                
          Wagner in the buyout is allocable to a covenant not to compete.             
          Respondent argues that the full $1.3 million was paid to Wagner             
          in exchange for his Sharewell stock.  For the reasons discussed             
          below, we agree with petitioner.                                            
          Parol Evidence Concerns                                                     
               In determining whether petitioner and Wagner entered into a            
          valid covenant not to compete, we must first decide what evidence           
          of their agreement incident to the buyout of Wagner we may                  
          consider.  Respondent argues that their agreement is contained in           
          the four corners of the Purchase Agreement, which makes no                  
          reference to a covenant not to compete, and that the Noncompete             
          Agreement, which does, is parol or extrinsic evidence that cannot           
          be considered under the Danielson rule.  In Commissioner v.                 
          Danielson, 378 F.2d 771, 775 (3d Cir. 1967), vacating and                   
          remanding 44 T.C. 549 (1965), the Court of Appeals for the Third            
          Circuit precluded a taxpayer's use of extrinsic evidence to                 





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