- 2 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011