John T. Jorgl and Sharon Illi - Page 1

          T.C. Memo. 2000-10                                                          

                               UNITED STATES TAX COURT                                

                    JOHN T. JORGL AND SHARON ILLI, Petitioners v.                     
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 11508-98.          Filed January 11, 2000.                  

                    Ps, husband and wife, operated a child care business of           
               which P husband was the sole shareholder.  P subsequently              
               established a charitable remainder unitrust and contributed            
               all of his shares in the child care business to the trust.             
               The trust later sold the business and received all proceeds            
               of the sale.  The purchase agreement between the trust and             
               the buyers contained a covenant not to compete, and Ps                 
               signed a separate document entitled “COVENANT NOT TO                   
               COMPETE” at the time of sale.  Ps reported no income as a              
               result of this transaction, and R determined a deficiency              
               for taxes attributable to the portion of the sale price                
               allocated to a covenant not to compete.                                
                    Held: Execution of a noncompetition agreement resulted            
               in taxable income to Ps to the extent of the purchase price            
               attributable thereto.  Although the trust received all                 
               proceeds of the sale, Ps were the true earners of the                  
               income.  Commissioner v. Sunnen, 333 U.S. 591, 604 (1948)              
               and Lucas v. Earl, 281 U.S. 111, 114-115 (1930), applied.              

Page:   1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011