ABC Partnership is engaged exclusively in providing consulting services, and capital is not a material income-producing factor. The ABC General Partnership agreement, which was drafted in 2014, did not explain how a retiring partner would be paid for his or her share of partnership goodwill. In 2018, the partnership executed an ‘‘Amendment of General Partnership Agreement,’’ which provided that Partner Adam was to receive $100,000 cash from the partnership on July 1, 2019. The payment was designed to retire Adam’s interest in the partnership. Of that amount, $30,000 was in return for Adam’s one-third interest in the fair market value of the net assets of the partnership. The other $70,000 was referred to as ‘‘a guaranteed payment, or a payment for goodwill.’’

Saying that the ‘‘Amendment of General Partnership Agreement’’ is not clear, the IRS wants to treat the payment for goodwill as ordinary income to Adam and deductible by the partnership. (Assume that this approach maximizes the tax revenue for the government). Presuming that the taxpayers would prefer a return of basis and capital gain, what case law authority is available to support this position?