- 15 - the contracting parties. See, e.g., Elrod v. Commissioner, supra at 1066; Smith v. Commissioner, supra at 713 n.8. Under the more stringent Danielson rule, a party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction or to show its unenforceability because of mistake, undue influence, fraud, duress, etc. * * * [Commissioner v. Danielson, supra at 775.] This Court typically applies the strong proof rule but will apply the Danielson rule when the circuit to which appeal would normally lie has adopted that test. See Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985 (10th Cir. 1971); see also Elrod v. Commissioner, supra at 1065-1066; Smith v. Commissioner, supra at 712 n.6. However, when a contract fails to make an allocation of purchase price to a covenant not to compete or does so in an ambiguous manner, neither the strong proof rule nor the Danielson rule is applicable. See, e.g., Elrod v. Commissioner, supra at 1066; Smith v. Commissioner, supra at 713-714. Instead, the taxpayer must establish by a preponderance of the evidence that respondent’s determination of a deficiency is erroneous. See Rule 142(a); Peterson Mach. Tool, Inc. v. Commissioner, 79 T.C. 72, 81-82 (1982), affd. per order (10th Cir., April 2, 1984). There are two primary elements to which the taxpayer’s burden of proof relates. See Peterson Mach. Tool, Inc. v.Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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