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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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