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strong effort to compete for the 180 clients that were
transferred to Haas. Petrie was an experienced and successful
accountant who, after the division, was the president and sole
shareholder of DP. We believe that the covenant not to compete
to which Petrie and DP agreed and for which Haas paid $190,000
reflects economic substance and that the $190,000 represented a
reasonable amount for the covenant not to compete. Based on
prior years, the clients protected by the covenant represented
approximately $600,000 in annual gross receipts. The $190,000
for the 3-year covenant not to compete is properly amortizable as
an ordinary and necessary business expense.
$63,500 Relating to Consulting Services
Petitioners contend that the $63,500 paid by Haas for the
right to receive consulting services from Petrie and DP was
necessary to aid in the division of the accounting practice.
Respondent contends that little, if any, consulting services
were provided by Petrie and DP, that petitioners have not
satisfied their burden of establishing Haas’ need for the
consulting services, and that any consulting services that were
provided by Petrie and DP (or its predecessor DPH) occurred
before the division and should be treated as nondeductible
startup expenditures of Haas & Associates. See sec. 195. We
agree with respondent.
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