Bemidji Distributing Co., Inc. - Page 2




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                Petitioner               Docket No.    Year    Deficiency             
          Bemidji Distributing Co.(BDC)  7186-99     2/28/93   $408,000               
          Cortland F. and Jean M.       7264-99    12/31/92      9,905                
          Langdon (the Langdons)                                                      
               The deficiencies stem from the 1992 sale of the assets of              
          BDC, an ongoing wholesale beer distributor, to Bravo Beverage,              
          Ltd. (Bravo) for $2,017,461.  Bravo required that the purchase              
          agreement between it, BDC, and petitioner Cortland F. Langdon               
          (Mr. Langdon) (BDC's president and sole shareholder), allocate              
          $1.2 million of the purchase price to two agreements with Mr.               
          Langdon:  $200,000 to a 2-year consulting agreement and $1                  
          million to a 5-year covenant not to compete.  Nothing was                   
          allocated to certain intangible assets, including goodwill, going           
          concern value, or exclusive distribution rights with two major              
          brewing companies.                                                          
               After concessions,2 the issues for decision are:  (1)                  
          Whether all or part of Bravo's payment to Mr. Langdon for the               
          covenant not to compete was a disguised payment for intangibles,            
          taxable to BDC, and a nondeductible dividend to Mr. Langdon; and            
          (2) whether a portion of BDC's payment of sales expenses was a              
          nondeductible constructive dividend to Mr. Langdon, paid to                 
          obtain the covenant not to compete and the consulting agreement.            




               2Respondent concedes that the parties to the sale and                  
          exchange properly allocated $200,000 to the 2-year consulting               
          agreement between Bravo and Mr. Langdon.                                    




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