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The fact that petitioners did not intend to be taxed on
their agreement and sought to avoid that result by refusing to
permit the document they signed to refer to the buyers is
irrelevant. As explained by this Court:
What is important in the facts herein is whether the
sellers intended that the covenants actually be a part
of the agreement (i.e., whether * * * [the buyer]
slipped the covenants into the contract without their
knowledge). The facts unquestionably show that the
sellers were aware of the terms. Moreover, the sellers
were represented by counsel who read the contract and
approved of its contents. That the sellers and/or
their counsel did not intend, and were not aware of,
the tax consequences of the disputed language is not
significant. As stated in Hamlin’s Trust v.
Commissioner, 209 F.2d 761, 765 (10th Cir. 1954), affg.
19 T.C. 718 (1953):
It is true that there was very little
discussion of the suggested allocation. But
the effectiveness taxwise of an agreement is
not measured by the amount of preliminary
discussion had respecting it. It is enough
if parties understand the contract and
understandingly enter into it. * * * where
parties enter into an agreement with a clear
understanding of its substance and content,
they cannot be heard to say later that they
overlooked possible tax consequences. * * *
[Peterson Mach. Tool, Inc. v. Commissioner, 79 T.C. 72,
83-84 (1982).]
Here, petitioners intended that their covenants be a part of
the overall sale transaction, they understood from the contents
of the documents that they were promising not to compete and that
consideration was being allocated to a covenant not to compete,
and they knew that in substance the buyers attributed importance
to their agreement. These facts regarding the actions of
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