- 8 -
affg. T.C. Memo. 1976-249; Montesi v. Commissioner, 340 F.2d 97,
100 (6th Cir. 1965), affg. 40 T.C. 511 (1963); Hamlin's Trust v.
Commissioner, 209 F.2d 761, 765 (10th Cir. 1954), affg. 19 T.C.
718 (1953); see Yandell v. United States, 315 F.2d 141, 142-143
(9th Cir. 1963) (per curiam). "Money paid as consideration for a
covenant not to compete is regarded as income received in place
of that which the taxpayer might otherwise have earned in the
field of enterprise from which the covenant excludes him [or
her]." Montesi v. Commissioner, supra.
As we understand petitioners' principal position, they argue
that CPC, and not petitioner, entered into the covenant not to
compete for which Donald C. Chiappetti paid $76,000 because that
covenant was binding on CPC and therefore obligated CPC, and not
petitioner, to refrain from practicing dentistry and from solic-
iting its patient base, which petitioners describe as CPC's most
important asset, as provided in that covenant. Respondent con-
tends that the income from the covenant not to compete is at-
tributable to petitioner because (1) that covenant obligates
petitioner in his individual capacity, and not CPC, to refrain
from practicing dentistry and from soliciting patients as pro-
vided therein, and (2) he cannot escape tax on that income by
assigning it to his wholly owned corporation. We agree with
respondent.
We find nothing in the covenant not to compete or in any
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011