Section 54 Noncompetition Agreements

• Library: Bus Trans 2005

Frequently, the purchaser of stock or assets of a corporation will negotiate for the parties to allocate a portion of the purchase price to a noncompetition agreement (covenant not to compete). Assuming that the amount allocated to the covenant is reasonable and has economic substance, the buyer should be entitled to amortize the covenant over the 15-year period permitted under I.R.C. § 197.

If the buyer were to unilaterally increase the amount of the covenant or make an allocation to the covenant that had not been mutually...