Frontier Chevrolet Co. - Page 7




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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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