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“Married Filing Separate” for 1995. On April 9, 1997, respondent
mailed Henry and Esther a notice of deficiency for 1989, 1990,
1991, 1992, and 1993. On August 28, 1998, respondent mailed
Henry and Esther a notice of deficiency for 1994 and 1996. On
August 28, 1998, respondent also mailed Henry a notice of
deficiency for 1995. In the notices, respondent determined that
the covenant not to compete payments were income to Henry. In
the notice of deficiency for 1990, respondent also determined
that Henry must report as income the remaining $150,000 of the
option price transferred by Henry to Bryan.
Respondent also examined HJA’s 1990, 1991, 1992, and 1993
tax years. After examining HJA’s 1990 return, respondent
proposed increasing HJA’s taxable income, but the adjustment did
not result in a deficiency because HJA had net operating losses
that absorbed the additional income. For that reason, respondent
did not determine an income tax deficiency for 1990 with respect
to HJA.
On August 28, 1997, respondent issued a notice of deficiency
to HJA for tax years 1991, 1992, and 1993, in which he disallowed
HJA’s deductions for the covenant not to compete payments. In so
doing, respondent has taken inconsistent positions with respect
to Henry and Esther, on the one hand, and HJA, on the other, in
order to avoid the possibility of a whipsaw.
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