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be treated by Haas as representing $151,165 in taxable
compensation and as an ordinary business expense for DP. Haas’
exchange of his DP stock for the stock in Haas & Associates was
to be treated as a tax-free reorganization under sections 355 and
368(a)(1)(D).
Under the terms of the separation agreement, the 180 client
files, the covenant not to compete, and the right to receive
consulting services were transferred to Haas individually in
exchange for the payment by Haas to DP of $263,500, the indicated
total value therefor.2
Until January 1, 1994, Haas carried on two separate
accounting practices--one individually and one through Haas &
Associates.
On January 1, 1994, Haas transferred all of the assets of
his individual accounting practice to Haas & Associates.
Haas and his wife Angela timely filed their 1993 joint
Federal income tax return. On their return, Haas included as
ordinary income the $151,000 reflecting the indicated value for
the shares of stock in DP that Haas had received.3
2 $10,000 relating to the client files + $190,000 relating to
the covenant not to compete + $63,500 relating to the consulting
services = $263,500.
3 DP issued to Haas a Form W-2, Wage and Tax Statement, in the
amount of $151,000 relating to the additional 8.26-percent stock
interest in DP that Haas received even though the value indicated
therefor in the separation agreement was $151,165.
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Last modified: May 25, 2011