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Petitioners also allege that the noncompete payments bore
interest. We find no basis for this allegation. It is true that
the second offer letter makes reference, in a handwritten
modification, to the payments’ bearing interest. We are unable
to find, however, that any such term was incorporated into the
final documents. The stock acquisition agreement explicitly
provides that it constitutes the entire agreement of the parties.
Finally, the relative proportion of the amount assigned to
the stockholders’ equity and the noncompete payments has not been
proven to be unreasonable. Conquest started as an
undercapitalized entity a relatively short time before the
agreements, and Jerry and Walker’s efforts increased Conquest’s
value at the time of sale. We are convinced that restricting
competition from Walker and Jerry had substantial value when the
stock acquisition agreement was signed and that the noncompete
protection was in fact of greater value than the other assets of
the business. Accordingly, we find that the payments made
pursuant to the noncompete agreement are ordinary income to
petitioners.
Alternative Argument
Petitioners argue alternatively that events in 1989
established a new agreement under which the noncompete payments
petitioners received in 1993 and 1994 are taxed at capital gains
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