Miner

MEMORANDUM *

This case, an appeal from the Tax Court, concerns the proper income tax treatment of proceeds from the sale of stock by Leonard Jasiak to Appellants Holly and John Miner. Miner and Jasiak were the sole shareholders of Cost Less Auto Parts, Inc. (“Cost Less”), a Subchapter S corporation. Both participated in the management of the corporation and each owned 50% of the stock of the corporation.

Jasiak decided to retire in 1986 and sold his stock to Cost Less for $175,000, $50,000 paid at closing and the balance by a promissory note. The agreement did not contain a covenant not to compete; it stated that it was to be governed by Arizona law; and it contained a merger clause.

Despite the agreement’s failure to contain a written covenant not to compete by Jasiak, Appellants Holly and John Miner amortized the entire $175,000 purchase price over a seven-year period on the basis that it constituted the amount paid to obtain Jasiak’s oral promise not to compete.

This case involves the alleged deficiencies arising from the taxable years 1988, 1989, and 1991, in the amounts of $13,717, $8,428, and $14,586, respectively, each arising from the Miners’ efforts to amortize a…