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for unfair competition as a factor in determining whether a trade
or business exists. National Water Well Association v.
Commissioner, 92 T.C. at 86.
The question of whether noncompetition under a covenant not
to compete constitutes a trade or business appears to be an issue
of first impression. Respondent argues that the determinative
factor is whether the activity was engaged in with an intent to
earn a profit, and the allocation of $2,064,500 to the
nonsponsorship and noncompetition clause clearly shows
petitioner’s profit motive.
While profit motive is an important factor in the trade or
business analysis, the Supreme Court made it clear that the level
of activity remains an important component of the trade or
business standard. Commissioner v. Groetzinger, supra at 35; see
also Professional Ins. Agents of Mich. v. Commissioner, 726 F.2d
at 1102; National Water Well Association v. Commissioner, supra
at 84. We simply do not think that a one-time agreement not to
engage in certain activities constitutes the kind of continuous
and regular activity characteristic of a trade or business. Nor
does noncompetition involve a “sale of goods” or “performance of
services” as set out in the definition of trade or business in
section 513(c). Moreover, we simply do not see how an agreement
not to compete creates a potential for unfair competition with a
taxable entity.
We are aware that a negative covenant to refrain from
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