(c) Unrealized Receivables. -- For purposes of this subchapter, the term "unrealized receivables" includes, to the extent not previously includible in income under the method of accounting used by the partnership, any rights (contractual or otherwise) to payment for --

* * * *

(2) services rendered, or to be rendered. * * *

1981 U.S. Tax Ct. LEXIS 82">*99 Petitioner contends that the dog track agreement gave the Collins-Ledoux partnership the right to manage and operate the dog track. According to petitioner, the agreement did not give the partnership any contractual rights to receive future payments and did not impose any obligation on the partnership to perform services. Rather, the agreement merely gave the partnership the right to occupy and use all of the corporation's properties (including the racetrack facilities and the racing permit) in operating its dog track business; if the partnership exercised such right, it would be obligated to make annual payments to the corporation based upon specified percentages of the annual mutuel handle. Thus, because the dog track agreement was in the nature of a leasehold agreement rather than an employment contract, it did not create the type of "unrealized receivables" referred to in section 751.

Respondent, on the other hand, contends that the partnership operated the racetrack for the corporation and was paid a portion of the profits for its efforts. As such, the agreement was in the nature of a management employment contract. When petitioner sold his partnership interest to the Collinses1981 U.S. Tax Ct. LEXIS 82">*100 in 1972, the main right that he sold was a contract right to receive income in the future for yet-to-be-rendered personal services. This, respondent asserts, is supported by the fact that petitioner determined the sales price for his partnership interest by capitalizing his 1972 annual income (approximately $ 160,000) by a factor of 5. Therefore, respondent contends that the portion of the gain realized by petitioner that is attributable to the management contract should be characterized as an amount received for unrealized receivables of the partnership. Consequently, such gain should be characterized as ordinary income under section 751.

77 T.C. 293">*303 The legislative history is not wholly clear with respect to the types of assets that Congress intended to place under the umbrella of "unrealized receivables." The House report states:

The term "unrealized receivables or fees" is used to apply to any rights to income which have not been included in gross income under the method of accounting employed by the partnership. The provision is applicable mainly to cash basis partnerships which have acquired a contractual or other legal right to income for goods or services. * * * [H. Rept. 1981 U.S. Tax Ct. LEXIS 82">*101 1337, 83d Cong., 2d Sess. 71 (1954).]

Essentially the same language appears in the report of the Senate committee. S. Rept. 1622, 83d Cong., 2d Sess. 98 (1954). In addition, the regulations elaborate on the meaning of "unrealized receivables" as used in section 751. Section 1.751-1(c), Income Tax Regs., provides:

Sec. 1.751-1(c)Unrealized receivables. (1) The term "unrealized receivables", * * * means any rights (contractual or otherwise) to payment for --

(i) Goods delivered or to be delivered (to the extent that such payment would be treated as received for property other than a capital asset), or

(ii) Services rendered or to be rendered, to the extent that income arising from such rights to payment was not previously includible in income under the method of accounting employed by the partnership. Such rights must have arisen under contracts or agreements in existence at the time of sale or distribution, although the partnership may not be able to enforce payment until a later time. For example, the term includes trade accounts receivable of a cash method taxpayer, and rights to payment for work or goods begun but incomplete at the time of the sale or distribution.

1981 U.S. Tax Ct. LEXIS 82">*102 * * * *

(3) In determining the amount of the sale price attributable to such unrealized receivables, or their value in a distribution treated as a sale or exchange, any arm's length agreement between the buyer and the seller, or between the partnership and the distributee partner, will generally establish the amount or value. In the absence of such an agreement, full account shall be taken not only of the estimated cost of completing performance of the contract or agreement, but also of the time between the sale or distribution and the time of payment.

The language of the legislative history and the regulations indicates that the term "unrealized receivables" includes any contractual or other right to payment for goods delivered or to be delivered or services rendered or to be rendered. Therefore, an analysis of the nature of the rights under the dog track agreement, in the context of the aforementioned legal framework, becomes appropriate. A number of cases have dealt with the meaning of "unrealized receivables" and thereby have helped to define the scope of the term. Courts that have 77 T.C. 293">*304 considered the term "unrealized receivables" generally have said that it should be1981 U.S. Tax Ct. LEXIS 82">*103 given a broad interpretation. Cf. Corn Products Co. v. Commissioner, 350 U.S. 46">350 U.S. 46, 350 U.S. 46">52 (1955) (the term "capital asset" is to be construed narrowly, but exclusions from the definition thereof are to be broadly and liberally construed). For instance, in Logan v. Commissioner, 51 T.C. 482">51 T.C. 482, 51 T.C. 482">486 (1968), we held that a partnership's right in quantum meruit to payment for work in progress constituted an unrealized receivable even though there was no express agreement between the partnership and its clients requiring payment. ⁵

1981 U.S. Tax Ct. LEXIS 82">*104 In Roth v. Commissioner, 321 F.2d 607">321 F.2d 607 (9th Cir. 1963), affg. 38 T.C. 171">38 T.C. 171 (1962), the Ninth Circuit dealt with the sale of an interest in a partnership which produced a movie and then gave a 10-year distribution right to Paramount Pictures Corp. in return for a percentage of the gross receipts. The selling partner claimed that his right to a portion of the payments expected under the partnership's contract with Paramount did not constitute an unrealized receivable. The court rejected this view, however, reasoning that Congress "meant to exclude from capital gains treatment any receipts which would have been treated as ordinary income to the partner if no transfer of the partnership interest had occurred." 321 F.2d 607">321 F.2d at 611. Therefore, the partnership's right to payments under the distribution contract was in the nature of an unrealized receivable.

A third example of the broad interpretation given to the term "unrealized receivable" is United States v. Eidson, 310 F.2d 111">310 F.2d 111 (5th Cir. 1962), revg. an unreported opinion (W.D. Tex. 1961). ⁶ The court there considered the1981 U.S. Tax Ct. LEXIS 82">*105 nature of a 77 T.C. 293">*305 management contract which was similar to the one at issue in the instant case. The case arose in the context of a sale by a partnership of all of its rights to operate and manage a mutual insurance company. The selling partnership received $ 170,000 for the rights it held under the management contract, and the Government asserted that the total amount should be treated as ordinary income. The Court of Appeals agreed with the Government's view on the ground that what was being assigned was not a capital asset whose value had accrued over a period of years; rather, the right to operate the company and receive profits therefrom during the remaining life of the contract was the real subject of the assignment. 310 F.2d 111">310 F.2d at 116. The Fifth Circuit found the Supreme Court's holding in Commissioner v. P. G. Lake, Inc., 356 U.S. 260">356 U.S. 260 (1958), to be conclusive:

The substance of what was assigned was the right to receive future income. The substance of what was received was the present value of income which the recipient would otherwise obtain in the future. In short, consideration was paid for the right to receive1981 U.S. Tax Ct. LEXIS 82">*106 future income, not for an increase in the value of the income-producing property. [356 U.S. 260">356 U.S. at 266, cited in 310 F.2d 111">310 F.2d at 115.]

In United States v. Woolsey, 326 F.2d 287">326 F.2d 287 (5th Cir. 1963), revg. 208 F. Supp. 325">208 F. Supp. 325 (S.D. Tex. 1962), the Fifth Circuit again faced a situation similar to the one that we face herein. The Fifth Circuit considered whether proceeds received by taxpayers on the sale of their partnership interests were to be treated as ordinary income or capital gain. There, the court was faced with the sale of interests in a partnership which held, as one of its assets, a 25-year contract to manage a mutual insurance company. As in the instant case, the contract gave the partners the right to render services for the term of the contract and to earn1981 U.S. Tax Ct. LEXIS 82">*107 ordinary income in the future. In holding that the partnership's management contract constituted an unrealized receivable, the court stated:

When we look at the underlying right assigned in this case, we cannot escape the conclusion that so much of the consideration which relates to the right to earn ordinary income in the future under the "management contract," taxable to the assignee as ordinary income, is likewise taxable to the assignor as ordinary income although such income must be earned. Section 751 has defined "unrealized receivables" to include any rights, contractual or otherwise, to ordinary income from "services rendered, or to be rendered," (emphasis added) to the extent that the same were not previously includable 77 T.C. 293">*306 in income by the partnership, with the result that capital gains rates cannot be applied to the rights to income under the facts of this case, which would constitute ordinary income had the same been received in due course by the partnership. * * * It is our conclusion that such portion of the consideration received by the taxpayers in this case as properly should be allocated to the present value of their right to earn ordinary income in1981 U.S. Tax Ct. LEXIS 82">*108 the future under the "management contract" is subject to taxation as ordinary income. * * * [326 F.2d 287">326 F.2d at 291.]

Petitioner attempts to distinguish 326 F.2d 287">United States v. Woolsey, supra, and 310 F.2d 111">United States v. Eidson, supra, from the instant case by arguing that those cases involved a sale or termination of contracts to manage mutual insurance companies in Texas and that the management contracts therein were in the nature of employment agreements. After closely scrutinizing the facts in those cases, we conclude that petitioner's position has no merit. The fact that the Woolsey case involved sale of 100 percent of the partnership interests, as opposed to a sale of only a 25-percent partnership interest herein, is of no consequence. In addition, the fact that Eidson involved the surrender of the partnership's contract right to manage the insurance company, as opposed to the continued partnership operation in the instant case, also is not a material factual distinction.

The dog track agreement at issue in the instant case is similar to the management contract considered by the Fifth Circuit in 1981 U.S. Tax Ct. LEXIS 82">*109 Woolsey. Each gives the respective partnership the right to operate a business for a period of years and to earn ordinary income in return for payments of specified amounts to the corporation that holds the State charter. Therefore, based on our analysis of the statutory language, the legislative history, and the regulations and relevant case law, we are compelled to find that the dog track agreement gave the petitioner an interest that amounted to an "unrealized receivable" within the meaning of section 751(c).

Petitioner further contends that the dog track agreement does not represent an unrealized receivable because it does not require or obligate the partnership to perform personal services in the future. The agreement only gives, the argument continues, the Collins-Ledoux partnership the right to engage in a business.

We find this argument to be unpersuasive. The words of section 751(c), providing that the term "unrealized receivable" 77 T.C. 293">*307 includes the right to payment for "services rendered, or to be rendered," do not preclude that section's application to a situation where, as here, the performance of services is not required by the agreement. As the Fifth Circuit1981 U.S. Tax Ct. LEXIS 82">*110 said in 310 F.2d 111">United States v. Eidson, supra:

The fact that * * * income would not be received by the [partnership] unless they performed the services which the contract required of them, that is, actively managed the affairs of the insurance company in a manner that would produce a profit after all of the necessary expenditures, does not, it seems clear, affect the nature of this payment. It affects only the amount. That is, the fact that the taxpayers would have to spend their time and energies in performing services for which the compensation would be received merely affects the price at which they would be willing to assign or transfer the contract. * * * [310 F.2d 111">310 F.2d at 115.]

Consequently, a portion of the consideration received by Ledoux on the sale of his partnership interest is subject to taxation as ordinary income.

Having established that the dog track agreement qualifies as an unrealized receivable, we next consider whether all or only part of petitioner's gain in excess of the amount attributable to his share of tangible partnership assets should be treated as ordinary income. Petitioner argues that this excess gain1981 U.S. Tax Ct. LEXIS 82">*111 was attributable to goodwill or the value of a going concern.

With respect to goodwill, we note that petitioner's attorney drafted, and petitioner signed, the agreement for sale of partnership interest, dated October 17, 1972, which contains the following statement in paragraph 7:

7. In the determination of the purchase price set forth in this agreement, the parties acknowledge no consideration has been given to any item of goodwill.

The meaning of the words "no consideration" is not entirely free from doubt. They could mean that no thought was given to an allocation of any of the sales price to goodwill, or they could indicate that the parties agreed that no part of the purchase price was allocated to goodwill. The testimony of the attorney who prepared the document indicates, however, that he did consider the implications of the sale of goodwill and even did research on the subject. He testified that he believed, albeit incorrectly, that, if goodwill were part of the purchase price, his client would not be entitled to capital gains treatment.

77 T.C. 293">*308 Petitioner attempts to justify this misstatement of the tax implications of an allocation to goodwill not by asserting mistake, 1981 U.S. Tax Ct. LEXIS 82">*112 but by pointing out that his attorney "is not a tax lawyer but is primarily involved with commercial law and real estate." We find as a fact that petitioner agreed at arm's length with the purchasers of his partnership interest that no part of the purchase price should be attributable to goodwill. The Tax Court long has adhered to the view that, absent "strong proof," a taxpayer cannot challenge an express allocation in an arm's-length sales contract to which he had agreed. See, e.g., Major v. Commissioner, 76 T.C. 239">76 T.C. 239, 76 T.C. 239">249 (1981), appeal pending (7th Cir., July 7, 1981); Lucas v. Commissioner, 58 T.C. 1022">58 T.C. 1022, 58 T.C. 1022">1032 (1972). In Spector v. Commissioner, 641 F.2d 376">641 F.2d 376 (5th Cir. 1981), revg. 71 T.C. 1017">71 T.C. 1017 (1979), the Fifth Circuit, to which an appeal in this case will lie, appeared to step away from its prior adherence to the "strong proof" standard and move toward the stricter standard enunciated in Commissioner v. Danielson, 378 F.2d 771">378 F.2d 771, 378 F.2d 771">775 (3d Cir. 1967), remanding 44 T.C. 549">44 T.C. 549 (1965), cert. denied 389 U.S. 858">389 U.S. 858 (1967).1981 U.S. Tax Ct. LEXIS 82">*113 ⁷ However, in this case, we need not measure the length of the step since we hold that petitioner has failed to introduce sufficient evidence to satisfy even the more lenient "strong proof" standard.

1981 U.S. Tax Ct. LEXIS 82">*114 We next turn to petitioner's contention that part or all of the purchase price received in excess of the value of tangible 77 T.C. 293">*309 assets is attributable to value of a going concern. In VGS Corp. v. Commissioner, 68 T.C. 563">68 T.C. 563 (1977), we stated that --

Going-concern value is, in essence, the additional element of value which attaches to property by reason of its existence as an integral part of a going concern. * * * [The] ability of a business to continue to function and generate income without interruption as a consequence of the change in ownership, is a vital part of the value of a going concern. * * * [68 T.C. 563">68 T.C. 591-592; citations omitted.]

However, in the instant case, the ability of the dogracing track to continue to function after the sale of Ledoux's partnership interest was due to the remaining partners' retention of rights to operate under the dog track agreement. Without such agreement, there would have been no continuing right to operate a business and no right to continue to earn income. Thus, the amount paid in excess of the value of Ledoux's share of the tangible assets was not for the intangible value1981 U.S. Tax Ct. LEXIS 82">*115 of the business as a going concern but rather for Ledoux's rights under the dog track agreement.

Finally, we turn to petitioner's claim that a determination of the value of rights arising from the dog track agreement has never been made and no evidence of the value of such rights was submitted in this case. We note that the $ 800,000 purchase price was proposed by petitioner and was accepted by Jack Collins and Jerry Collins in an arm's-length agreement of sale evidenced in the memorandum of agreement of July 19, 1972, and the agreement for sale of partnership interest of October 17, 1972. In addition, the October 17, 1972, sales agreement, written by petitioner's attorney, provided in paragraph 1 that the "Seller [Ledoux] sells to buyer [Jerry Collins and Jack Collins] all of his interest in [the partnership] * * * including but not limited to, the seller's right to income and to acquire the capital stock of The Sanford-Orlando Kennel Club, Inc." (Emphasis added.) Section 1.751-1(c)(3), Income Tax Regs., provides that an arm's-length agreement between the buyer and the seller generally will establish the value attributable to unrealized receivables.

Based on the provision in1981 U.S. Tax Ct. LEXIS 82">*116 the agreement that no part of the consideration was attributable to goodwill, it is clear to us that the parties were aware that they could, if they so desired, have 77 T.C. 293">*310 provided that no part of the consideration was attributable to the dog track agreement. No such provision was made. ⁸ Furthermore, the agreement clearly stated that one of the assets purchased was Ledoux's rights to future income. Considering that petitioner calculated the purchase price by capitalizing future earnings expected under the dog track agreement, we conclude that the portion of Ledoux's gain in excess of the amount attributable to tangible assets was attributable to an unrealized receivable as reflected by the dog track agreement.

Decision will be entered for the respondent.