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performing services has been held to be the equivalent of
affirmative personal services. Patterson v. Commissioner, 810
F.2d 562, 569 (6th Cir. 1987), affg. T.C. Memo. 1985-53; Salvage
v. Commissioner, 76 F.2d 112, 113-114 (2d Cir. 1935), affd. 297
U.S. 106 (1936); Cox v. Helvering, 71 F.2d 987, 988 (D.C. Cir.
1934); Ullman v. Commissioner, 29 T.C. 129, 139 (1957), affd. 264
F.2d 305 (2d Cir. 1959). However, this rule has been applied
only for purposes of determining that a payment received for such
a covenant constitutes income to the recipient.5 Such
application is appropriate given the exceedingly broad definition
of income. The definition of trade or business, on the other
hand, is more narrow as noted by the Supreme Court in
Commissioner v. Groetzinger, supra at 35. We, therefore, decline
to treat the absence of activity resulting from a covenant not to
compete as equivalent to the affirmative performance of such
activity for purposes of applying the definition of a trade or
business in this context. Accordingly, we find that the payment
made by Landmark to petitioner pursuant to the terms of the
nonsponsorship and noncompetition clause contained in their 1985
5Similarly, in Schaefer v. Commissioner, 105 T.C. 227
(1995), we sustained a Treasury regulation under which income
from a covenant not to compete is not considered “passive” income
for purposes of sec. 469. In Schaefer, we dealt only with the
validity of a regulation that specifically classified income from
a covenant not to compete as nonpassive income. We did not deal
with the more narrow question of whether the income from such a
covenant is derived from a trade or business regularly carried on
within the meaning of the unrelated business income tax, which
confronts us in the present case.
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