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to Mr. Johnston on its corporate books. On the balance sheets
(Schedule L, with Detail Statement) of its 1994 and 1995 Federal
income tax returns (Forms 1120S), Don Johnston, Inc., reported
that it owed Mr. Johnston $290,000 on December 31, 1994, and
December 31, 1995.
OPINION
I. Section 197
The first issue is whether Burien Nissan must amortize
noncompetition agreement payments to Mr. Johnston over 15 years
pursuant to section 197. Burien Nissan argues that the
noncompetition agreement was entered into in 1990; therefore, it
is not a section 197 intangible. We disagree.
An “amortizable section 197 intangible” must be amortized
ratably over a 15-year period beginning with the month in which
such intangible was acquired. Sec. 197(a). An “amortizable
section 197 intangible” is any section 197 intangible acquired by
a taxpayer after August 10, 1993,21 and held in connection with
the conduct of a trade or business. Sec. 197(c)(1). A covenant
not to compete entered into in connection with an acquisition of
an interest in a trade or business is a section 197 intangible.
See sec. 197(d)(1)(E).
Execution of the 1990 noncompetition agreement was
contingent upon the prior occurrence of particular events. The
1990 noncompetition agreement would be executed if Burien Nissan
21See Omnibus Budget Reconciliation Act of 1993, Pub. L.
103-66, sec. 13261(g), 107 Stat. 540, for effective date.
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