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Farm that included “personally produced policies and other
intangible assets”.
Petitioners attached Form 8594, Asset Acquisition Statement
Under Section 1060, to their tax return. On Form 8594,
petitioners indicated the fair market value for the Class IV
asset as $164,140.6 Petitioners answered “yes” to the following
question on line 6 of Form 8594: “did the buyer also purchase *
* * a covenant not to compete?” Petitioners did not assign a
value for the covenant not to compete.
In a notice of deficiency, respondent determined that the
termination payment from State Farm was ordinary income and did
not qualify for capital gain treatment.
Discussion
I. Positions of the Parties
Respondent argues that petitioner did not sell any property
to State Farm because all of the property was owned by State Farm
and reverted to State Farm when petitioner terminated his
relationship with State Farm. Respondent contends that the
agreement does not evidence a sale because the contract does not
list a seller or purchaser. Respondent also argues that
petitioners failed to establish that the termination payment
represents proceeds from the sale of a business, business assets,
6 A taxpayer may treat goodwill acquired before Feb. 14,
1997, as a Class IV asset. Sec. 1.1060-1T(a)(2)(ii), Temporary
Income Tax Regs., 62 Fed. Reg. 2272 (Jan. 16, 1997).
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