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advantageous from a tax standpoint. For reasons undisclosed at
trial, respondent now concedes that the value of the covenant was
$200,000 and not $300,000 as allocated in the closing statements.
The full $650,000 price was deposited directly from escrow into
the trust’s account, and petitioners received no additional
compensation for signing the separate document.
Following the closing, the Shahs received from petitioners
the business training referenced in the prospectus and the
purchase agreement. The prospectus had indicated that “TRAINING
2 weeks @ 20 hrs.” was included in the sale price. Section 15 of
the purchase agreement similarly stated: “TRAINING: Seller
shall train buyer in the operation of the business”. On August
14, 1993, petitioners sent a letter to memorialize completion of
this training which reads in part: “As of August 13, 1993,
Sharon has completed the training with Priti in accordance with
the requirements of our Purchase Agreement dated May 24, 1993,
Section 15.”
Petitioners’ Federal income tax return for 1993 did not
reflect any income as a consequence of the above transactions.
OPINION
We must decide whether the sale of a business operated by
petitioners, after petitioner had transferred all stock in the
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