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Burien Nissan also argued that it was entitled to a net loss
carryforward into 1995 based largely on the same reasons asserted
for additional deductions for 1994. Burien Nissan has failed to
meet its burden for additional deductions in 1995.
III. Lump-Sum Payment
The Johnstons argue that Burien Nissan’s $45,483 payment to
Mr. Johnston on February 1, 1994, was made to him in his capacity
as a partner in the Johnston Family Partnership. According to
the Johnstons, the check was an interest payment on a note due to
the Johnston Family Partnership; not a payment under the 1993
noncompetition agreement. Therefore, according to the Johnstons,
the payment should not be included in Mr. Johnston’s taxable
income. We disagree.
Gross income includes compensation for services. See sec.
61(a)(1). We have found that “Amounts paid by a purchaser to a
seller for a covenant not to compete are ordinary income to the
seller since they are tantamount to payments for services.”
Schmitz v. Commissioner, 51 T.C. 306, 313 (1968), affd. sub. nom.
Throndson v. Commissioner, 457 F.2d 1022 (9th Cir. 1972).
The promissory note from Burien Nissan to the Johnston
Family Partnership was canceled on January 12, 1994, and the
$45,483 check payable to Mr. Johnston was written on February 1,
1994. Burien Nissan did not deduct the $45,483 payment as
interest on its original 1994 Federal income return; instead, it
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