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The sale of the business under the June 3 and 5, 1992,
purchase agreement closed on or about October 30, 1992.
BDC incurred and deducted $107,815 for expenses of the sale
transaction.
C. Notices of Deficiency
In the notice of deficiency issued to BDC, respondent
determined, among other things, that BDC failed to report $1.2
million of income received from Bravo.6 Alternatively, if the
allocations should be upheld, respondent determined that the
selling expenses incurred by BDC were improperly allocated, and
these expenses attributable to the consulting agreement and
covenant (59.48 percent) are a constructive dividend to Mr.
Langdon and not deductible by BDC.
The notice of deficiency issued to the Langdons was
consistent, determining that 59.48 percent of selling expenses is
a constructive dividend to Mr. Langdon.
Shortly before the trial in the instant cases, respondent
conceded that Mr. Langdon's consulting agreement with Bravo had a
value of $200,000. At trial and on brief, respondent conceded
that the covenant had a value of $121,000.
6The Langdons reported and paid personal income tax on the
$1.2 million, in keeping with the purchase agreement allocation.
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