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allocated to this important and valuable covenant, that
intention must be respected. * * *
* * * * * * *
Did the parties, not preliminarily, but when they
signed the agreement, intend to allocate a portion of
the purchase price to the covenant not to compete?
Id. at 7-8 (emphasis added).
In Better Beverages, Inc. v. United States, supra at 425,
Better Beverages purchased the assets of a soft drink business
located in Victoria, Texas. A letter of intent signed by the
parties fixed a purchase price of $400,000 for all of the assets
of the selling company, except real estate and office equipment.
Id. at 426. The letter of intent made no mention of a covenant
not to compete and did not allocate, for income tax purposes, the
$400,000 among the various assets. Id. Approximately 3 weeks
after the letter of intent was signed, the parties consummated
the transaction by use of a bill of sale whose terms were
consistent with the letter of intent except, inter alia, it
included a covenant not to compete for 10 years. Id. at 427.
The purchase price remained the same and remained unallocated
among the various assets. Id.
Better Beverages thereafter unilaterally allocated $244,547
to the covenant not to compete and amortized that amount on its
tax returns. Id. The seller of the soft drink business made no
allocation to the covenant not to compete, treating its gain as
gain from the sale of capital assets. Id. The Internal Revenue
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