Burien Nissan, Inc., et al. - Page 19




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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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