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required economic outlay. Jerry may not increase his basis in
Ram by the $100,000 advanced by Mattel to Ram.
Innovative Payment
On February 2, 1996, TSI wrote a $3,000 check to Innovative.
Petitioners assert that TSI acted as Jerry’s agent and was merely
used as Jerry’s incorporated pocketbook. The credible evidence
in the record does not support this assertion. We conclude that
Jerry may not increase his basis in Innovative by $3,000 on the
basis of this transaction.
II. Characterization Of Noncompete Payments
Petitioners’ 1989, 1990, 1991, and 1992 Federal income tax
returns characterized the noncompete payments as ordinary income.
Petitioners seek to characterize the continuation of those
payments in 1993 and 1994 as capital gains. Petitioners argue
primarily that they should be relieved of the tax consequences
flowing from the apportionment of the purchase price in the 1988
stock acquisition agreement. Petitioners assert alternatively
that events in 1989 establish that a new agreement was reached
under which the noncompete payments petitioners received in 1993
and 1994 are treated as capital gains rather than ordinary
income.
Primary Argument
Given petitioners’ different residences, this case is
appealable to the Courts of Appeals for the Fourth and Eleventh
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