116 T.C. No. 23
UNITED STATES TAX COURT
FRONTIER CHEVROLET CO., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19627-98. Filed May 14, 2001.
P entered into a stock sale agreement in which P
redeemed 75 percent of its outstanding stock from C in
exchange for monetary consideration. P also entered
into a noncompetition agreement in which P agreed to
make monthly payments to C and S for a period of 5
years so long as C and S agreed not to compete with P.
P argues that it is permitted to amortize the
noncompetition agreement payments over 60 months, the
life of the agreement.
Held: Sec. 197, I.R.C., requires that a covenant
not to compete entered into in connection with a direct
or indirect acquisition of an interest in a trade or
business be amortized over 15 years. The
noncompetition agreement was entered into in connection
with P’s redemption of its stock, which was an
acquisition of an interest in a trade or business. P
must amortize the noncompetition agreement payments
over 15 years.
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