Sharewell, Inc. - Page 22




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          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; Beaver Bolt, Inc. v.            
          Commissioner, T.C. Memo. 1995-549.  The instant case raises three           
          questions under the applicable law:  (1) Did the buyout agreement           
          between petitioner and Wagner include Wagner’s covenant not to              
          compete; (2) did the covenant reflect economic reality; and (3)             
          did the parties to the buyout agreement allocate $300,000 to the            
          covenant?                                                                   
          Did the Buyout Agreement Include Wagner’s Covenant Not To                   
          Compete?                                                                    
               We find, for much the same reasons that support the                    
          consideration of extrinsic evidence, that such evidence                     
          convincingly demonstrates that petitioner and Wagner intended               
          Wagner’s covenant not to compete to be a part of their buyout               
          agreement when they executed the Purchase Agreement and that the            
          execution of the Noncompete Agreement 12 days later served to               
          correct a mutual mistake.  Wagner and Forest both testified that            
          a covenant was always contemplated in their negotiations for the            
          buyout, and their banker’s testimony corroborates that it was an            
          essential part of the buyout agreement.  As discussed in greater            
          detail in connection with the parol evidence concerns, the                  
          surrounding circumstances strongly support the testimony, because           






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