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parties shall sign an “Agreement Termination Purchase and Sale
Agreement” (termination agreement).13 Mr. Johnston, Mr.
McLaughlin, and the purchasers entered into the termination
agreement on January 12, 1994. The termination agreement
provided, in part:
[T]he undersigned parties hereby agree that all further
rights, liabilities and responsibilities under the May,
1990 stock [purchase agreement] are terminated,
including but not limited to the noncompetition
agreement, the sale and purchase of 61,200 shares of
Donald Johnston’s remaining stock * * *
On February 1, 1994, Burien Nissan issued a check for
$45,483 to Mr. Johnston.14 Burien Nissan capitalized the payment
of $45,483 and amortized the cost over 15 years on its original
1994 Federal income tax return. Mr. Johnston did not report the
$45,483 payment as income.
Burien Nissan deducted the full amount of 11 monthly
payments of $5,117 on its 1994 Federal income tax return, 12
monthly payments of $5,117 on its 1995 Federal income tax return,
13The 1994 stock redemption agreement also provided that the
parties “shall sign and enter into the Donald Johnston
noncompetition agreement, which document is incorporated herein
by reference.” From this, we conclude that the noncompetition
agreement was not effective until January 1994, when this
agreement was signed and when Mr. Johnston received consideration
for entering into the noncompetition agreement.
14The difference between the $45,483 check paid on Feb. 1,
1994, and the lump-sum payment of $45,503 due Mr. Johnston
pursuant to the 1993 supplement is $20. As stated earlier, the
$20 difference is an adjustment to the payments due Mr. Johnston
due to a computational error.
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