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resulting capital gain would be recognized using the installment
sale method of accounting, and (2) the covenant not to compete
payments made under the EOA, at $23,767 per month, would be taxed
as ordinary income to Henry in the year received. The Baird,
Kurtz letter also stated with respect to the $150,000 from Bryan
used to fund the escrow account that “It is our understanding
that you [Henry] owe Bryan $150,000, which will be repaid in
1990. Any additional amounts transferred to him [Bryan] would
constitute gifts”. Baird, Kurtz attached a schedule to its
letter entitled “CASH FLOW PROJECTIONS-–HENRY MISLE” which
assumed, among other things, that Henry’s debts to Chevrolet and
FirsTier would remain intact and would be amortized over 10 years
and that Bryan would receive $150,000 from Henry in 1990 as
repayment of Bryan’s loan.
D. State Litigation
In January 1991, disputes arose among HJA, Henry, Abram, and
Julius relating to the EOA. Sometime before January 21, 1991,
HJA stopped making payments into the sweep account under the EOA.
On January 21, 1991, Henry and Bryan filed a lawsuit in the
District Court of Lancaster County, Nebraska, against HJA,
Abram,17 and Julius, alleging breach of the EOA (the State
litigation). The defendants counterclaimed, alleging
misrepresentation and a breach of covenants made by Henry in the
17During the course of the State litigation, Abram died and
his estate was substituted as a party.
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