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defense in a petition for redetermination of a deficiency filed pursuant to section 6213(a). See Butler v. Commissioner, 114 T.C. 276 (2000); Charlton v. Commissioner, 114 T.C. 333 (2000). In a deficiency proceeding, we consider all the facts and circumstances relevant to ascertaining the correct amount of the deficiency, including affirmative defenses. See secs. 6213 and 6214; Butler v. Commissioner, supra at 287; Woods v. Commissioner, 92 T.C. 776, 784-785 (1989); Naftel v. Commissioner, 85 T.C. 527, 533 (1985).

The second jurisdictional predicate is found in section 6015(e). This section enables an electing spouse to petition for review of an administrative determination (or failure to make a determination) regarding relief from liability as a stand-alone matter, independent of any deficiency proceeding. See Fernandez v. Commissioner, 114 T.C. 324 (2000).

The essence of Ms. Clark's argument is that she is entitled to raise her entitlement to section 6015 relief as an affirmative defense in a section 6404 action. Ms. Clark asserts that there is sufficient jurisdictional predicate for this Court to determine her substantive claim. Historically we we have characterized a claim for relief from joint liability as an affirmative defense that must be set forth in the pleadings. See Butler v. Commissioner, supra at 287-288.

In Neely v. Commissioner, 115 T.C. 287 (2000), an analogous case, we held that we had jurisdiction to decide an affirmative defense raised by a taxpayer in a section 7436 case (proceedings for determination of employment status). Section 7436, like section 6404, allows judicial review of a determination of the Commissioner. In that case we reasoned:

The statute of limitations set forth in section 6501 constitutes a defense at bar (i.e., an affirmative defense) that may be raised by the taxpayer in response to a determination made by the Commissioner. See Rule 39; Genesis Oil & Gas, Ltd. v. Commissioner, [93 T.C. 562 (1989)] supra at 564. Once our jurisdiction has been properly invoked in a case, we require no additional jurisdiction to render a decision with respect to such an affirmative defense. See Genesis Oil & Gas, Ltd. v. Commissioner, supra at 564. Rather, "When such a defense in bar is properly raised, we must pass upon the merits of the issue after receiving evidence with respect thereto". Badger Materials, Inc. v. Commissioner, [40 T.C. 1061 (1963)] supra at 1063. Accordingly, we hold that where the parties are properly before the Court in an action brought under section 7436, the Court possesses juris

diction to address issues relating to the period of limitations under section 6501 that are properly raised by the parties.

In this case, our jurisdiction over the parties under section 7436 was invoked through petitioner's timely filed petition seeking review of respondent's notice of determination. When petitioner pleaded as an affirmative defense in his petition that respondent's determination as to worker classification was barred by expiration of the 3-year period of limitations under section 6501(a), we required no additional jurisdiction to address such issue.

[Id. at 292-293.]

In a stand-alone proceeding, the Court has no jurisdiction to consider a request for relief from joint liability on a joint return under section 6015 unless the following three requirements are met: (1) The taxpayer has filed a timely election pursuant to section 6015, (2) respondent has notified the taxpayer that respondent has denied the taxpayer's request for relief under that section, and (3) the taxpayer has timely petitioned this Court for relief under section 6015(e)(1). See sec. 6015. The record here discloses that none of the procedural requirements for our jurisdiction under section 6015(e) has been satisfied.

However, we can find no compelling reason to distinguish the logic and reasoning of this Court in Neely v. Commissioner, supra. An entitlement to the statutory relief provided by section 6015 is no less a defense to respondent's determination than the statutory relief provided by section 6501(a) in the Neely case. There, as in the instant case, an affirmative defense was pleaded in a matter properly before the Court. Petitioner's petition under section 6404 is properly before the Court, and we hold we require no additional jurisdiction to address Ms. Clark's claim for section 6015 relief.2 Consequently, we shall deny respondent's motion to strike paragraph 16 of the petition and paragraph 2 of petitioners' prayer for relief.

2 We, however, do not have jurisdiction over the correctness of the underlying deficiency determination in the instant proceeding.

To reflect the foregoing,

An appropriate order will be issued.

FRONTIER CHEVROLET CO., PETITIONER v. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT

Docket No. 19627-98.

Filed May 14, 2001.

P entered into a stock sale agreement in which P redeemed 75 percent of its outstanding stock from C in exchange for monetary consideration. P also entered into a noncompetition agreement in which P agreed to make monthly payments to C and S for a period of 5 years so long as C and S agreed not to compete with P. P argues that it is permitted to amortize the noncompetition agreement payments over 60 months, the life of the agreement. Held: Sec. 197, I.R.C., requires that a covenant not to compete entered into in connection with a direct or indirect acquisition of an interest in a trade or business be amortized over 15 years. The noncompetition agreement was entered into in connection with P's redemption of its stock, which was an acquisition of an interest in a trade or business. P must amortize the noncompetition agreement payments over 15 years.

Peter T. Stanley, for petitioner.

James R. Robb and Virginia L. Hamilton, for respondent.

OPINION

RUWE, Judge: Respondent determined deficiencies in petitioner's Federal income taxes as follows:

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After concessions,1 the issue for decision is whether petitioner must amortize noncompetition agreement payments over 15 years pursuant to section 197.2

1 The parties filed a stipulation of settled issues in which they resolved all the issues raised in the notice of deficiency. The remaining issue related to sec. 197 was raised by petitioner in its amended petition.

2 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and ProceContinued

Background

The parties submitted this case fully stipulated. The stipulation of facts, the stipulation of settled issues, and the attached exhibits are incorporated herein by this reference. Petitioner is a corporation that had its principal place of business in Billings, Montana, at the time it filed its petition. Petitioner is engaged in the trade or business of selling and servicing new and used vehicles.3 Roundtree Automotive Group, Inc. (Roundtree), is a corporation engaged in the trade or business of purchasing and operating automobile dealerships and providing consulting services to these dealerships.4 Frank Stinson (Mr. Stinson) was involved in the operations of Roundtree during the years 1987 through 1994.

Roundtree originally purchased all the stock of petitioner in August of 1987. Consistent with Mr. Stinson's and Roundtree's policy of management, petitioner filled the position of executive manager of its dealership with one of Mr. Stinson's long-term employees, Dennis Menholt (Mr. Menholt). As part of his employment by petitioner, Mr. Menholt was allowed to purchase, from 1987 through 1994, 25 percent of the stock of petitioner.

In 1994, Mr. Menholt was the general manager of petitioner's automobile dealership located in Billings, Montana, and Mr. Stinson was the president of Roundtree. Mr. Stinson participated in the management of petitioner's business, particularly in advertising and sales training. Roundtree received monthly payments of $22,000 for management services it performed for petitioner. Prior to August 1, 1994, Roundtree owned 75 percent of the stock in petitioner, and Mr. Menholt owned the remaining 25 percent.

Petitioner entered into a "Stock Sale Agreement" with Roundtree. Effective August 1, 1994, petitioner redeemed all its stock owned by Roundtree for $3.5 million. The funds to redeem the stock were borrowed from General Motors Acceptance Corp. (GMAC), with liens placed on all tangible assets of petitioner. After the stock sale agreement, Mr. Menholt was the sole remaining shareholder of petitioner.

dure.

3 Petitioner was formerly known as Frontier Chevrolet Co. References to petitioner include events which occurred when it was known as Frontier Chevrolet Co.

4 Roundtree was formerly known as FS Enterprises, Inc. References to Roundtree include events which occurred when it was known as FS Enterprises, Inc.

Petitioner also entered into a "Non-Competition Agreement" (noncompetition agreement) with Mr. Stinson and Roundtree, effective August 1, 1994. The noncompetition agreement stated:

To induce ** * [petitioner] to enter into and consummate the Stock Sale Agreement and to protect the value of the shares of stock being purchased, Roundtree and [Mr.] Stinson covenant, to the extent provided in Section 1 hereof, that Roundtree and [Mr.] Stinson shall not compete with * * * [petitioner's] automobile dealership, stock of which was sold to * * [petitioner] pursuant to the Stock Sale Agreement.

Section 1, entitled "Covenant Not to Compete", provided that Roundtree and Mr. Stinson would not compete with petitioner in the car dealership business within Yellowstone County for a period of 5 years. The agreement stated that the competition restrictions against Mr. Stinson and Roundtree "are reasonable and necessary to protect the business and interest which * * * [petitioner] under the Stock Sale Agreement is acquiring pursuant to the Stock Sale Agreement". As consideration for the obligations of Roundtree and Mr. Stinson, petitioner agreed to pay Roundtree and Mr. Stinson $22,000 per month for 60 months. The consideration under the noncompetition agreement was in addition to the consideration petitioner paid to redeem its stock. In the event petitioner defaulted on the noncompetition agreement payments, the entire amount of the remaining payments would immediately become due and collectible, and the covenant not to compete would terminate 90 days after such default. If Roundtree and Mr. Stinson breached their obligations under the agreement, petitioner was entitled to one-half of the net profits for 5 years of any business conducted which breached the covenant not to compete.

Due to the GMAC loan, petitioner was leveraged with large interest expenses. In the summer of 1994, petitioner was below the minimum working capital requirements of its franchisor and had to obtain a special waiver of working capital requirements in order to continue holding its franchise. There was no known alternative to the noncompetition agreement with Roundtree and Mr. Stinson in order to protect petitioner from their competition in the Billings market. Without the agreement, it would have been difficult for petitioner to raise capital or to pay its loan from GMAC.

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