Sam Altshuler and Fred Sommers were the sole shareholders of the successful Annabelle Candy Company (Annabelle) (plaintiff). The two shareholders signed an agreement for Altshuler’s purchase of Sommers’s shares for $115,000. The agreement included a covenant barring Sommers from competing with Altshuler for five years. Altshuler and Sommers preliminarily set the $115,000 purchase price before they began discussions over the covenant. The agreement did not allocate any portion of the $115,000 price to the covenant, which was of great value to Altshuler. Altshuler’s bookkeeper unsuccessfully advised Altshuler to include severable consideration for the covenant in the agreement for tax purposes. On the federal tax return for Annabelle, of which he was now the sole owner, Altshuler allocated $80,554.67 of the $115,000 purchase price to the covenant. Altshuler began amortizing this allocation over the covenant’s five-year term. However, the commissioner of internal revenue (commissioner) (defendant) determined that Annabelle was not entitled to the amortization deductions. Annabelle petitioned the tax court for a redetermination, and the tax court ruled in the commissioner’s favor. Annabelle appealed to the United States Court of Appeals for the Ninth Circuit.