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termination payment is taxable as ordinary income. Ordinary
income treatment is accorded to a variety of payments. See,
e.g., Hort v. Commissioner, 313 U.S. 28 (1941) (income received
upon cancellation of lease derived from relinquishment of right
to future rental payments in return for a present substitute
payment and possession of premises); Elliott v. United States,
supra (payment for termination of insurance agency contract was
ordinary income); Foxe v. Commissioner, 53 T.C. at 25 (payment to
insurance agent upon cancellation of employment contract was
ordinary income); General Ins. Agency, Inc. v. Commissioner, T.C.
Memo. 1967-143 (payment for agreement not to compete was ordinary
income), affd. 401 F.2d 324 (4th Cir. 1968).
VII. Covenant Not To Compete
An amount received for an agreement not to compete is
generally taxable as ordinary income. Banc One Corp. v.
Commissioner, 84 T.C. 476, 490 (1985), affd. without published
opinion 815 F.2d 75 (6th Cir. 1987); Warsaw Photographic
Associates, Inc. v. Commissioner, 84 T.C. 21 (1985); Ullman v.
Commissioner, 29 T.C. 129 (1957), affd. 264 F.2d 305 (2d Cir.
1959); General Ins. Agency, Inc. v. Commissioner, supra.
Petitioners reported the sale of a covenant not to compete
on Form 8594 attached to the return. The agreement provides
that, after retiring, petitioner would not solicit State Farm’s
policyholders for 1 year, or petitioner would forfeit the
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