- 62 -
(taxpayers are bound by the structure of their transaction),
affg. T.C. Memo. 1999-425.
We conclude that Burndy-US transferred excess value of
$3,926,430 to FCI in 1993 by paying FCI’s hedging loss in that
amount.
e. The Covenants Not To Compete
The US-Europe covenant not to compete had a fair market
value of $8 million, of which $2 million is attributable to TRW’s
not competing in the U.S. and $6 million is attributable to TRW’s
not competing in Europe (European component of the US-Europe
covenant). Petitioners contend that Burndy-US paid $6 million to
FCI and received the European component of the covenant not to
compete worth $6 million and that this benefited Burndy-US and
its subsidiaries. Respondent contends that Burndy-US transferred
$6 million to FCI by paying FCI that amount for a covenant not to
compete that benefited FCI and its subsidiaries. In essence,
respondent contends that Burndy-US received nothing for the $6
million it paid to FCI. We disagree.
FC-Italy made automotive air bag connectors for the European
market. FCI obtained the European component of the US-Europe
covenant not to compete primarily to benefit FC-Italy. FC-Italy
was a subsidiary of Burndy-US on December 22, 1992, when Burndy-
US acquired the covenant not to compete, and throughout 1993, the
year in issue. Thus, Burndy-US’s payment to FCI for the European
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