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the decedent had lived and received such amount.” Sec.
691(a)(3); Kitch v. Commissioner, supra at 10. Payments received
pursuant to an agreement not to compete are ordinary income in
the year of receipt. See Kinney v. Commissioner, supra at 1041-
1042; Rev. Rul. 69-643, 1969-2 C.B. 10. Accordingly, we hold
that the character of the payments received by petitioner was
that of ordinary income.
We next address whether petitioner received a step-up in
basis of 75 percent of the value of the payments. Section
1014(a) generally provides that the basis in property acquired
from a decedent shall be “stepped up” to the fair market value of
the property at the date of the decedent’s death. However,
section 1014(c) specifically excludes the application of section
1014(a) to property representing IRD under section 691. Because
the payments received by petitioner constitute IRD, we
accordingly hold that petitioner did not receive a stepped-up
basis of 75 percent of the value of the payments.3 See Rollert
Residuary Trust v. Commissioner, supra at 647-648.
II. State Income Tax
Petitioner deducted State income tax of $789 on his 1998
Federal income tax return. During 1999, petitioner received a
3 Decedent’s estate did not pay estate tax with respect to
the inclusion of 75 percent of the payments in decedent’s gross
estate. Therefore, petitioner is not eligible for a deduction
for estate tax paid under sec. 691(c).
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