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covenant not to compete |
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covenant not to compete n. a common provision in a contract for sale of a business in which the seller agrees not to compete in the same business for a period of years or in the geographic area. This covenant is usually allocated (given) a value in the sales price. (See: covenant) |
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? References in periodicals archive |
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Payments paid by a buyer under a covenant not to compete are ordinary income to the selling shareholders, but must be amortized by the buyer (and cannot be expensed) over 15 years, even though the covenant may be for a shorter period of time than 15 years. A portion of O's payments were for a covenant not to compete under the agreement. By shifting the purchase price from the assets to the covenant not to compete, the taxpayer paid less tax and the acquirer was entitled to greater early tax deductions. |
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covenant not to compete
