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The intentions of the parties involved in the transaction
and the economic reality of Ps’ covenant render a portion of
the consideration paid properly allocable to their promise.
Held, further, Ps, relying upon professional advisers,
acted reasonably and in good faith with respect to their tax
treatment of the sale transaction and are not liable for the
accuracy-related penalty under sec. 6662, I.R.C., for a
substantial understatement of income tax.
William J. Mitchell and Kevin P. Courtney, for petitioners.
Steven Walker, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
NIMS, Judge: Respondent determined a Federal income tax
deficiency for petitioners’ 1993 taxable year in the amount of
$120,439. Respondent also determined an accuracy-related penalty
of $24,088 for 1993, pursuant to section 6662(a).
The issues for decision are as follows:
(1) Whether the sale of a business by a charitable remainder
unitrust resulted in taxable income to petitioners by reason of a
covenant not to compete executed in connection with the sale; and
(2) whether petitioners are liable for the section 6662(a)
accuracy-related penalty on account of a substantial
understatement of income tax.
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