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his involvement with Mattel. Ralston gave permission to Jerry
for Mattel to compete with Conquest without restriction and to do
whatever was necessary to make Mattel profitable. From 1990
onward, Mattel introduced new products and entered new markets
without complying with the terms of Jerry’s noncompete agreement.
Jerry received the following payments attributable to his
noncompete agreement:
Year Amount
1989 $589,031
1990 987,263
1991 1,068,711
1992 1,785,715
1993 1,071,429
1994 1,071,926
Other Facts
Jerry was an active trader of securities. During 1992, he
made 322 security trades through licensed brokers. In 1993, he
made through brokers approximately 226 sales and 285 purchases of
securities having total values of $15,255,341 and $16,465,415,
respectively. In 1994, he made through brokers approximately 294
sales and 420 purchases of securities having total values of
$19,822,148 and $22,688,408, respectively. Petitioners reported
these activities on their Federal income tax returns as resulting
in capital gains in 1992 and resulting in ordinary losses in
1993, 1994, and 1995. Respondent determined, and petitioners
have since conceded, that the losses in 1993, 1994, and 1995 were
reportable as capital losses.
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