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case, petitioner entered into a stock sale agreement in which it
redeemed 75 percent of its outstanding stock from Roundtree. As
a result of the stock sale agreement, petitioner regained
possession and control over its stock. On the basis of the plain
meaning of the statute, we conclude that the redemption was an
“acquisition” within the meaning of section 197 because
petitioner received 75 percent of its stock as a result of the
transaction with Roundtree.10
In order for section 197 to apply, petitioner must have
directly or indirectly acquired an “interest in a trade or
business”. The relevant legislative history of section 197
provides:
9(...continued)
corporation if it acquires its stock from a shareholder in
exchange for property. See also Steffen v. Commissioner, 69 T.C.
1049, 1054 (1978) (redemption under sec. 317(b) is defined as a
corporation’s acquisition of its stock from a shareholder in
exchange for property).
10Although not applicable to the instant case because the
noncompetition agreement was entered into before its effective
date, sec. 1.197-2(b)(9), Income Tax Regs., supports respondent’s
argument that the term “acquisition” includes a redemption of
stock. Sec. 1.197-2(b)(9), Income Tax Regs., provides, in
pertinent part:
Section 197 intangibles include any covenant not to
compete, or agreement having substantially the same
effect, entered into in connection with the direct or
indirect acquisition of an interest in a trade or
business or a substantial portion thereof. For
purposes of this paragraph (b)(9), an acquisition may
be made in the form of an asset acquisition * * * a
stock acquisition or redemption, and the acquisition or
redemption of a partnership interest. * * *
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