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not to compete for a period of 15 years. The parties allocated
$50,000 of the contract price to the covenant.
In April 1991, petitioner purchased two timber sales
contracts and some equipment from Reidhead Lumber Company
(Reidhead). The Reidhead sales agreement included a covenant not
to compete for a period of 6 years. The parties allocated
$250,000 of the contract price to the covenant.
In March 1993, petitioner purchased assets related to a
sawmill operation in Payson, Arizona, including two timber sales
contracts and some equipment from Kaibab Industries (Kaibab).
The Kaibab purchase agreement included a covenant not to compete
for a period ending September 1, 2000. The agreement did not
make any specific allocations of the contract price. Petitioner,
however, filed a Form 8594, Asset Acquisition Statement, with its
Federal income tax return for FYE March 31, 1994, which allocated
$200,000 of the contract price to the covenant. Kaibab also
filed a Form 8594, but allocated $0 of the contract price to the
covenant.
In 1993, the Mexican Spotted Owl was added to the list of
endangered species protected under the Endangered Species Act, 16
U.S.C. secs. 1531-1543 (1994). In 1995, the United States
District Court for the District of Arizona issued a prohibitory
injunction banning logging operations in northern Arizona and New
Mexico to protect the Mexican Spotted Owl's habitat.
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