- 18 -
461, 468 (1974); Haber v. Commissioner, 52 T.C. 255, 266 (1969),
affd. 422 F.2d 198 (5th Cir. 1970); Roschuni v. Commissioner, 29
T.C. 1193, 1202 (1958), affd. per curiam 271 F.2d 267 (5th Cir.
1959); Baird v. Commissioner, 25 T.C. 387, 393 (1955); McDonald
v. Commissioner, 28 B.T.A. 64, 66 (1933). A covenant not to
compete must have "economic reality"; i.e., some independent
basis in fact or business reality so that reasonable persons
might bargain for the agreement. Patterson v. Commissioner, 810
F.2d 562, 571 (6th Cir. 1987), affg. T.C. Memo. 1985-53; Schulz
v. Commissioner, 294 F.2d 52, 55 (9th Cir. 1961), affg. 34 T.C.
235 (1960); O'Dell & Co. v. Commissioner, supra at 467-468.
Courts apply numerous factors in evaluating a covenant
not to compete. These include: (a) The seller's (i.e.,
covenantor's) ability to compete, (b) the seller's intent to
compete, (c) the seller's economic resources, (d) the potential
damage to the buyer posed by the seller's competition, (e) the
seller's business expertise in the industry, (f) the seller's
contacts and relationships with customers, suppliers, and others
in the business, (g) the buyer's interest in eliminating
competition, (h) the duration and geographic scope of the
covenant, and (i) the seller's intention to remain in the same
area. Kalamazoo Oil Co. v. Commissioner, 693 F.2d 618 (6th Cir.
1982), affg. T.C. Memo. 1981-344; Forward Communications Corp. v.
United States, 221 Ct. Cl. 582, 608 F.2d 485, 492 (1979);
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011