William R. & Carol Enyart - Page 17




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               Petitioners argue in the alternative that respondent’s                 
          determination under section 6662(a) is wrong because they acted             
          in good faith and with reasonable cause in reporting only $20,000           
          of capital gain in their joint return for the year at issue with            
          respect to Mr. Enyart’s receipt during that year of the B&L                 
          equipment.  To support that alternative argument, petitioners               
          contend (1) that there was no statutory or case law to guide them           
          in reporting Mr. Enyart’s receipt of the B&L equipment as consid-           
          eration for Mr. Enyart’s covenant and (2) that they relied on Mr.           
          Fyffe to prepare their joint return.  On the record before us, we           
          reject petitioners’ alternative position under section 6662(a).             
               Gross income includes the fair market value of property                
          received in payment for services.  See sec. 1.61-2(d)(1), Income            
          Tax Regs.  We have found that “Amounts paid by a purchaser to a             
          seller for a covenant not to compete are ordinary income to the             
          seller since they are tantamount to payments for services.”                 
          Schmitz v. Commissioner, 51 T.C. 306, 313 (1968), affd. 457 F.2d            
          1022 (9th Cir. 1972).  See generally Montesi v. Commissioner, 340           
          F.2d 97, 100 (6th Cir. 1965), affg. 40 T.C. 511 (1963); Schaefer            
          v. Commissioner, 105 T.C. 227, 231-232 (1995).  We have found               
          that petitioners have failed to show that the value of the B&L              
          equipment which B&L transferred to Mr. Enyart during the year at            
          issue was less than $300,000.  On the record before us, we reject           
          petitioners’ contention that there was no statutory or case law             






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