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Petitioner also argues that State Farm purchased goodwill.
To qualify as the sale of goodwill, the taxpayer must demonstrate
that he sold “‘the business or a part of it, to which the
goodwill attaches’”. Schelble v. Commissioner, 130 F.3d at 1394
(quoting Elliott v. United States, 431 F.2d 1149, 1154 (10th Cir.
1970)). Goodwill is “the expectancy of continued patronage, for
whatever reason.” Boe v. Commissioner, 307 F.2d 339, 343 (9th
Cir. 1962), affg. 35 T.C. 720 (1961); see also VGS Corp. v.
Commissioner, 68 T.C. 563, 590 (1977).
Nevertheless, because petitioner, for the reasons already
explained, did not own and sell capital assets in his agency to
State Farm, we conclude that petitioner did not sell goodwill.
VI. Nature of Ordinary Income
Respondent does not clearly explain his position as to the
nature of the termination payment other than to argue that it is
not taxable as capital gain. In the notice of deficiency,
respondent determined that the termination payment was ordinary
income. In his brief, respondent primarily argues that
petitioners did not satisfy their burden of proof to establish
that the termination payment was proceeds of a sale and thus
subject to capital gain treatment.
Having concluded above that the termination payment was not
received for the sale or exchange of a capital asset and is not
entitled to treatment as a capital gain, we conclude that the
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