Case Name: Clarence Clark Hamlin Trust; The Exchange National Bank of Colorado Springs, and Tor Hylbom, Trustees, Petitioners, v. Commissioner of Internal Revenue, Respondent; Estate of T. E. Nowels, Deceased; Bertie M. Nowels and The Exchange National Bank of Colorado Springs, Coexecutors, and Bertie M. Nowels, Surviving Wife, Petitioners, v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1953-01-22
Citations: 19 T.C. 718
Docket Number: Docket Nos. 28135, 28605
Parties: Clarence Clark Hamlin Trust; The Exchange National Bank of Colorado Springs, and Tor Hylbom, Trustees, Petitioners, v. Commissioner of Internal Revenue, Respondent. Estate of T. E. Nowels, Deceased; Bertie M. Nowels and The Exchange National Bank of Colorado Springs, Coexecutors, and Bertie M. Nowels, Surviving Wife, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Judges: Turner and Withey, JJ., agree with this dissent.
Reporter: Reports of the Tax Court of the United States
Volume: 19
Pages: 718–726

Head Matter:
Clarence Clark Hamlin Trust; The Exchange National Bank of Colorado Springs, and Tor Hylbom, Trustees, Petitioners, v. Commissioner of Internal Revenue, Respondent. Estate of T. E. Nowels, Deceased; Bertie M. Nowels and The Exchange National Bank of Colorado Springs, Coexecutors, and Bertie M. Nowels, Surviving Wife, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Docket Nos. 28135, 28605.
Promulgated January 22, 1953.
Ralph B. Mayo, O. P. A., and John L. J. Hart, Esq., for the petitioners.
Fra/nk M. Oa/vanaugh, Esq., for the respondent.

Opinion:
OPINION.
Tietjens, Judge:
This case confronts us with the not unusual situation in which respondent, to protect the revenue, takes inconsistent positions with respect to the tax consequences of the same transaction. See Estate of Daniel G. Reid, 15 T. C. 573; Ruth W. Collins, 14 T. C. 301. Here, respondent would tax the selling stockholders on the portion of the purchase price allocated to the covenant not to compete as ordinary income to them. In Gazette Telegraph Co., Docket No. 24861, 19 T. C. 692, on the other hand, respondent contended that the purchasing stockholders paid the entire purchase price for the stock and nothing for the covenant not to compete and so are not entitled to amortize the amount claimed to have been paid for the covenant.
Inevitably this adds to the difficulty of reaching a decision, for almost irreconcilable interpretations of the evidence are strongly urged by the parties to the transaction, in the understandable efforts of each party to gain a tax advantage, while respondent presents contrary arguments in each case, though in the nature of things he should lose one and win the other.
Petitioners here primarily contend that the money they received from the Hoileses was all received for their stock in Gazette-Telegraph and that none was received for their covenant not to engage in the newspaper publishing or distribution business. This, of course, would make meaningless the clause of the contract specifically allocating the agreed upon $200 as follows: $150 for each share of stock and $50 on a per share basis to each stockholder for the covenant.
Undoubtedly, this Court, in a proper case, is not bound by the parol evidence rule in seeking to determine the tax consequences of a transaction to which the Government is not a party. Haverty Realty & Investment Co., 3 T. C. 161. This does not help petitioners, for after taking into account all of the relevant facts of the transaction and considering the whole record, we have concluded that the written contract accurately reflected the agreement of the parties and that that agreement was reached at arm's length. In the circumstances, it is not incumbent on the Court to disturb the allocation of purchase price made by the parties themselves.
This Court has said in Rodney B. Horton, 13 T. C. 143, 147-148:
It is well settled that if, in an agreement of the hind which we have here, the covenant not to compete can he segregated in order to be assured that a separate item has actually been dealt with, then so much as is paid for the covenant not to compete is ordinary income and not income from the sale of a capital asset. Estate of Mildred K. Hyde, 42 B. T. A. 738. On the other hand, where the covenant not to compete accompanies the transfer of good will in the sale of a going concern and it is apparent that the covenant not to compete has the function primarily of assuring to the purchaser the beneficial enjoyment of the good will which has been acquired, the covenant is regarded as nonseverable and as being in effect a contributing element of the assets transferred. Toledo Newspaper Co., 2. T. C. 794; Toledo Blade Co., 11 T. C. 1079; Aaron Michaels, supra. [12 T. C. 17]
As stated in Gazette Telegraph Co., supra, we think this case is distinguishable from Toledo Newspaper Co. and Toledo Blade Co. [referred to in the excerpt above from the Horton case]. Here, petitioners were selling their stock in Gazette-Telegraph. They were not selling a going business together with the good will, in which event the covenant not to compete might have been regarded as non-severable. The parties to the instant transaction, in our opinion, treated the covenant as a separate item of their negotiations and while it is evident that petitioners might not have fully appreciated the significance tax-wise of what they were doing, the purchasers were fully aware of what the consequences to them might be, and had put the petitioners on notice that tax problems were involved.
Much of petitioners' evidence bore on the value of the covenant, which value, as they saw it, was zero, because none of them, according to their contention, intended to engage further in the newspaper business anyway and there was doubt about the legal capacity of the Hamlin Trust and El Pomar Investment Company so to do. This, it seems to us, begs the question, which is not whether the covenant had a certain value, but, rather, whether the purchasers paid the amount claimed for the covenant as a separate item in the deal and so treated it in their negotiations. This, we have found, they did.
We see nothing in the record before us which would require a result inconsistent with our decision in Gazette Telegraph Co., supra. Accordingly,
Decision will be entered for the respondent.
Eeviewed by the Court.