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testified, a customary practice in such circumstances, it may
have been too routine to warrant mentioning in the Loan
Worksheet, which itself was an informal, internal document.
Based on all of the relevant evidence, including the plausibility
of his assertions and his demeanor when testifying, we find
Fraser credible and reject respondent’s contention that he gave
false testimony. Accordingly, Forest’s and Wagner’s testimony
that a covenant not to compete from Wagner was always intended as
part of the buyout agreement is corroborated by Fraser’s
testimony in addition to other evidence. For that reason, this
case is distinguishable from Deshotels v. United States, 450 F.2d
961 (5th Cir. 1971).
Economic Reality of Allocation to Noncompete Covenant
Having established that it is appropriate to consider parol
testimony and other extrinsic evidence in construing the
agreement between petitioner and Wagner, we turn to a
consideration of whether petitioner has shown entitlement to the
deductions claimed with respect to a covenant not to compete. In
connection with the purchase of a business, a taxpayer may
amortize a portion of the purchase price if it was intended as
payment for a covenant not to compete from a departing
shareholder and the amount paid for the covenant reflected
economic reality. See Patterson v. Commissioner, 810 F.2d at
571; Better Beverages, Inc. v. United States, 619 F.2d 424, 428
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