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covenant not to compete.
Petitioner entered into a stock sale agreement with
Roundtree. Under the terms of that agreement, petitioner
redeemed 75 percent of its stock from Roundtree for $3.5 million.
Petitioner also entered into a noncompetition agreement with
Roundtree and Mr. Stinson. A purpose of the noncompetition
agreement was:
To induce * * * [petitioner] to enter into and
consummate the Stock Sale Agreement and to protect the
value of the shares of stock being purchased, Roundtree
and [Mr.] Stinson covenant, to the extent provided in
Section 1 hereof, that Roundtree and [Mr.] Stinson
shall not compete with * * * [petitioner’s] automobile
dealership, stock of which was sold to * * *
[petitioner] pursuant to the Stock Sale Agreement.
The noncompetition agreement prohibited Roundtree and Mr. Stinson
from competing with petitioner in the car dealership business
within Yellowstone County for a period of 5 years. The facts
establish, and petitioner does not dispute, that the
noncompetition agreement was entered into “in connection with”
the stock sale agreement.
Petitioner argues that it did not acquire an interest in a
trade or business pursuant to the stock transaction because, both
before and after the transaction, petitioner was engaged in
exactly the same trade or business and it acquired no other new
assets. Respondent argues that petitioner’s redemption of its
stock was an “acquisition” of an interest in a trade or business
within the meaning of section 197.
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Last modified: May 25, 2011