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The term “section 197 intangible” also includes
any covenant not to compete (or other arrangement to
the extent that the arrangement has substantially the
same effect as a covenant not to compete) entered into
in connection with the direct or indirect acquisition
of an interest in a trade or business (or a substantial
portion thereof). For this purpose, an interest in a
trade or business includes not only the assets of a
trade or business, but also stock in a corporation that
is engaged in a trade or business or an interest in a
partnership that is engaged in a trade or business.
[H. Rept. 103-111, at 764 (1993), 1993-3 C.B. 167, 340;
emphasis added.]
See also H. Conf. Rept. 103-213, at 677 (1993), 1993-3 C.B. 393,
555 (using language nearly identical to that used in the House
report). The legislative history explains that an “acquisition
of stock that is not treated as an asset acquisition” is treated
as “an indirect acquisition of a trade or business”. Id. at 694,
1993-3 C.B. at 572. Thus, the legislative history indicates that
an interest in a trade or business includes not only the direct
acquisition of the assets of the trade or business but also the
acquisition of stock in a corporation that is engaged in a trade
or business.
The noncompetition agreement provides that the covenant not
to compete was “reasonable and necessary to protect the business
and interest which * * * [petitioner] under the Stock Sale
Agreement is acquiring pursuant to the Stock Sale Agreement”.
Petitioner acquired 75 percent of its stock when it entered into
the stock sale agreement with Roundtree. Petitioner is a
corporation engaged in the trade or business of selling and
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