- 20 -
capitalized the payment and amortized the cost over 15 years.24
The 1993 agreement, executed on December 13, 1993,
prohibiting Mr. Johnston from competing with Burien Nissan,
required 60 monthly payments of $5,117 and a lump-sum payment of
$45,503. However, due to a computational error, Mr. Whitehead
told Mr. Johnston that Burien Nissan would reduce one payment by
$20. Burien Nissan paid the full $5,117 in all of the 60 monthly
payments. Thus, we conclude that the $45,483 payment to Mr.
Johnston on February 1, 1994, was in satisfaction of the lump-sum
payment due under the 1993 supplement agreement, executed on
December 13, 1993, prohibiting Mr. Johnston from competing with
Burien Nissan.
We find that the $45,483 lump-sum payment to Mr. Johnston
was paid pursuant to the noncompetition agreement. We hold that
Mr. Johnston must include the payment in his 1994 taxable income.
24Burien Nissan asserted that it made an error on its 1994
Federal income tax return but that it filed an amended tax return
for additional interest. As discussed supra, pp. 18-19, Burien
Nissan has not established that it was entitled to additional
interest deductions in 1994.
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