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long-term capital gain. See secs. 1221, 1222, 1223.7 If this
characterization were carried over to BHC’s income tax return,
BHC would have, for the tax years involved, no amortization
deduction because it would not be acquiring an amortizable asset.
BHC contends that it purchased not only the corporate stock,
but also a covenant not to compete, and that at least $5,307,600
of the consideration paid in 1996 should be allocated to the
covenant, resulting in an amortization deduction for that year.8
If this characterization of the transaction were carried over to
William Becker’s individual income tax return for 1996, he would
have to include the portion of the consideration received
attributable to the covenant not to compete as ordinary income.
See Sonnleitner v. Commissioner, 598 F.2d 464, 466 (5th Cir.
1979), affg. T.C. Memo. 1976-249; Montesi v. Commissioner, 340
F.2d 97, 100 (6th Cir. 1965), affg. 40 T.C. 511 (1963); Jorgl v.
Commissioner, T.C. Memo. 2000-10, affd. per curiam without
published opinion 264 F.3d 1145 (11th Cir. 2001).
7 Unless otherwise indicated, all section references are
to the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
8 See sec. 1.167(a)-3, Income Tax Regs. Sec. 197,
requiring amortization of a covenant not to compete ratably over
the 15-year period beginning with the month in which the
intangible was acquired is applicable, if an appropriate election
is made, for acquisitions after July 25, 1991. See Omnibus
Budget Reconciliation Act of 1993, Pub. L. 103-66, sec.
13261(g)(2) and (3), 107 Stat. 540, as amended by the Small
Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1703(1), 110 Stat. 1875.
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