Annabelle Candy Co. v. Commissioner of Internal Revenue

This is another tax case involving solely the allocation of the purchase price of certain corporation stock between asset value, good will, if any, and a covenant not to compete.

It involves the assessment of a deficiency in federal income tax for the years 1956 and 1957. The Commissioner mailed the notice of deficiency for the calendar years 1956 and 1957 in the amounts of $5,236.06 and $3,035.12, respectively, on July 14, 1959. Within ninety days, and on October 5, 1959, a petition for redetermination was filed with the Tax Court under the provisions of Section 6213 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 6213 . On June 12, 1961, the Tax Court entered its decision 1 affirming the deficiencies assessed by the Commissioner. A timely petition for review was filed; this court has jurisdiction under Section 7482 of the Internal Revenue Code of 1954.

Though other issues were before the Tax Court, the only question here presented is whether the Tax Court correctly held that petitioner-appellant 2 was not entitled to deduct from its federal income taxes amounts represented as the amortized cost of a restrictive covenant.

The facts as found by the Tax Court (many of which…

On Petition for Rehearing.

The petition for rehearing and reply thereto establish more clearly than was heretofore apparent, that at the time the contract for the purchase of Sommers' stock was executed there was no expressed intention one way or the other as to allocation and tax consequences. It follows that the petitioner failed to sustain its burden of proving that, notwithstanding the lack of any recital to that effect in the agreement, the parties intended to allocate consideration to the covenant.

Accordingly we are now of the view that there is no need of remanding the matter to the tax court for a rehearing on the question of intention. The opinion is therefore modified to provide, in lieu of a remand, that the decision of the tax court be affirmed. In other respects the opinion stands, as a means of indicating our disagreement with certain views expressed in the decision of the tax court and the erroneous legal theory upon which it relied, which views and theory, however, under the circumstances did not affect the correct disposition of the case.

The petition for rehearing is denied.

314 F.2d 1 ANNABELLE CANDY CO., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. No. 17576. United States Court of Appeals Ninth Circuit. August 22, 1962. Rehearing Denied December 11, 1962. Dinkelspiel & Dinkelspiel, John F. Taylor, San Francisco, Cal., for petitioner. Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Melva M. Graney, Charles B. E. Freeman, Attys., Dept. of Justice, Tax Division, Washington, D. C., Crane C. Hauser, Chicago, Ill., Chief Counsel, Bruce Terris, Washington, D. C., Attys., Internal Revenue Service, for respondent. Before BARNES, HAMLEY and JERTBERG, Circuit Judges. BARNES, Circuit Judge. 1 This is another tax case involving solely the allocation of the purchase price of certain corporation stock between asset value, good will, if any, and a covenant not to compete. 2 It involves the assessment of a deficiency in federal income tax for the years 1956 and 1957. The Commissioner mailed the notice of deficiency for the calendar years 1956 and 1957 in the amounts of $5,236.06 and $3,035.12, respectively, on July 14, 1959. Within ninety days, and on October 5, 1959, a petition for redetermination was filed with the Tax Court under the…