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of a trade or business. Sec. 197(c)(1). A covenant not to
compete entered into in connection with a direct or indirect
acquisition of an interest in a trade or business is a section
197 intangible.6 See sec. 197(d)(1)(E).7
Petitioner argues that it did not acquire any interest in a
trade or business; therefore, the covenant not to compete is not
a section 197 intangible and petitioner is permitted to amortize
the payments over 60 months, the life of the covenant. This is
the first instance in which we have the opportunity to consider
the statutory requirements of section 197 as they relate to a
6Under prior law, amounts paid for a covenant not to compete
were amortizable over the life of the covenant. See Newark
Morning Ledger Co. v. United States, 507 U.S. 546 (1993); Warsaw
Photographic Associates v. Commissioner, 84 T.C. 21, 48 (1985).
Sec. 197(b) provides that “Except as provided in subsection (a),
no depreciation or amortization deduction shall be allowable with
respect to any amortizable section 197 intangible.”
7Sec. 197(d)(1) provides, in pertinent part:
SEC. 197(d). Section 197 Intangible.--For
purposes of this section--
(1) In general.--Except as otherwise
provided in this section, the term “section 197
intangible” means--
* * * * * * *
(E) any covenant not to compete (or
other arrangement to the extent such
arrangement has substantially the same effect
as a covenant not to compete) entered into in
connection with an acquisition (directly or
indirectly) of an interest in a trade or
business or substantial portion thereof * * *
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