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component of the covenant not to compete benefited Burndy-US’s
subsidiary, FC-Italy.
FC-Germany, a subsidiary of FCI in 1993, also manufactured
automotive air bag connectors. Respondent contends that buying
the European component of the US-Europe covenant not to compete
resulted in a constructive dividend to FCI because FC-Germany
could also benefit from the European component of the US-Europe
covenant not to compete. We disagree. FCI acquired the European
component of the US-Europe covenant not to compete to benefit FC-
Italy, not FC-Germany. FCI obtained two other covenants not to
compete (Germany and Austria) to benefit FC-Germany. A corporate
distribution is not a constructive dividend if the distribution
was not primarily for shareholder benefit. See Sammons v.
Commissioner, 472 F.2d 449, 452 (5th Cir. 1972), affg. in part,
revg. in part on other issues, and remanding T.C. Memo. 1971-145;
Gulf Oil Corp. v. Commissioner, 89 T.C. 1010, 1030 (1987), affd.
914 F.2d 396 (3d Cir. 1990). The US-Europe covenant not to
compete was not primarily for the benefit of FCI.
We conclude that Burndy-US did not transfer excess value to
FCI in 1993 by paying $6 million for the European component of
the US-Europe covenant not to compete.
f. Conclusion About Transferred Excess Value
Burndy-US transferred $20,881,431 ($15,807,495 + $3,926,430
+ $1,147,506) in excess value to FCI in 1993. Burndy-US
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