- 27 -
made a subsequent, unilateral allocation, without the seller’s
knowledge or consent.
Based on the record in this case, we think the allocation
was the product of a bargained-for exchange. We think it is more
likely that Wagner’s reporting position reflected a lack of
awareness of the covenant’s tax significance than a belief that
no amount had been allocated to the covenant. We find
significant in reaching our conclusion the fact that the
allocation was not just a division of the total consideration; it
was an allocation between cash payable at closing and assigned
accounts receivable to be paid in the future. Forest testified
that he wished to allocate the $300,000 in accounts receivable
from SDI to the Noncompete Agreement because it was the only
portion of the consideration that was not borrowed and
immediately payable to Wagner, but instead would be paid in
installments in the future–-giving Forest some practical
recourse, in his view, if Wagner subsequently breached the
covenant. We accept Forest’s explanation and find that it
demonstrates that Wagner had a position adverse to the allocation
agreed to, for nontax reasons. It would have been somewhat more
advantageous to Wagner to allocate the cash consideration, or a
portion thereof, to the covenant so that in the event Forest were
to consider the covenant breached, Forest would be less likely to
attempt to revoke the assignment of the receivables. These
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011