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alia, a one-third interest in the unexpired portion of the
agreement. During 1999, petitioner received payments totaling
$3,666 from Grossmont Animal Hospital in accordance with the
agreement. Petitioner did not report these payments on his 1999
Federal income tax return.
On his 1998 Federal income tax return petitioner claimed an
itemized deduction for State and local taxes in the amount of
$789. During 1999 petitioner received a refund of State and
local taxes in the amount of $355. He did not report the $355
refund as income on his 1999 Federal income tax return.
OPINION
This controversy concerns whether payments received by
petitioner in connection with the agreement are income in respect
of a decedent (IRD) and therefore includable in his gross income.
A second issue concerns whether petitioner’s State income tax
refund for his 1998 tax year is includable in petitioner’s 1999
gross income.
I. Income in Respect of a Decedent
As of the date of decedent’s death, 75 percent of the value
of the unexpired portion of the agreement not to compete was
included in decedent’s estate. On the basis of petitioner’s
testimony, we interpret his arguments to be as follows: (1) As
of the date of decedent’s death, the basis in the unexpired
portion of the agreement was “stepped up” to 75 percent of its
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