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Better Beverages, Inc. was decided before October 1, 1991, it is
binding precedent in the Eleventh Circuit. See Bonner v. City of
Prichard, 661 F.2d at 1207. Additionally, the Tax Court applied
the mutual intent test in Jorgl, which was affirmed by the
Eleventh Circuit in an unpublished per curiam opinion. See Jorgl
v. Commissioner, T.C. Memo. 2000-10. In Jorgl, we stated that we
would not apply the strong proof rule or the Danielson rule, see
infra, when a contract failed to make an allocation of purchase
price to a covenant not to compete or did so in an ambiguous
manner. Jorgl v. Commissioner, supra. Instead, we stated that
the taxpayer must establish, by a preponderance of evidence, that
respondent’s deficiency determination is erroneous, with the
threshold inquiry being “whether the parties mutually intended
that an allocation of the purchase price be made to the covenant
at issue”, citing Better Beverages Inc. v. United States, supra
at 430. Id. If such mutual intent is found,
courts then proceed to evaluate whether an allocation
comports with “economic reality”. * * * An allocation
will generally be given effect where “the covenants had
independent economic significance such that * * * [the
Court] might conclude that they were a separately
bargained-for element of the agreement.”
Jorgl v. Commissioner, supra (quoting Peterson Mach. Tool, Inc.
v. Commissioner, 79 T.C. 72, 81 (1982), affd. 54 AFTR 2d 84-5407,
84-2 USTC par. 9885 (10th Cir. 1984)).
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