Covenant Not To Compete

[BOB W]

Go girl.............................

[DONNA ASTON]

Bob

The person I bounced it off today basically concluded what your final summary is. We did not put all the numbers in the forms but concluded what is taxable and non-taxable ordinary and capital gains. Still working on it, but thank you all for the input.

[DONNA ASTON]

veritas

I did bounce it off someone locally, and yes it is complicated we will all agree there.

[BOB W]

The example in The Tax Book shows sales price non compete as in agreement and the cost zero for a ordinary gain on 4797 of the total on agreement for non compete. Not really showing line item on 6252 installment form. But thanks and maybe someone else will jump in and I will read more

OPTION 1

6252 LINE1 =271,537.68
LINE 8= 50,000.00

4797 PART 2 SHOW 50,000.00

OPTION 2

6251 LINE 1 = 221537.68

4797 PART2 SHOW 50,000 GAIN

While this may not be correct it will get you where you want to go.

2010
50,000 ordinary gain
58,993.59 capital gain
1,006.41 interest income

[veritas]

My suggestion

The example in The Tax Book shows sales price non compete as in agreement and the cost zero for a ordinary gain on 4797 of the total on agreement for non compete. Not really showing line item on 6252 installment form. But thanks and maybe someone else will jump in and I will read more

Donna, is too see someone to help you locally. The situation you are dealing with is complicated and subject too certain pitfalls.

[DONNA ASTON]

The example in The Tax Book shows sales price non compete as in agreement and the cost zero for a ordinary gain on 4797 of the total on agreement for non compete. Not really showing line item on 6252 installment form. But thanks and maybe someone else will jump in and I will read more

[DONNA ASTON]

the number is the same got it. Thanks.

[BOB W]

Thank you so much for all your help. So If after all the posts the $271,537.38 goes on line 5 of the 6252 and $60,000 less yearly interest is line 21 of 6252. Back to one of the posts on covenant not to compete and is considered ordinary income and only capital gains qualify for installment method reporting. Is the total non-compete amt reported this year on the on part II of the 4797? The s corp is not being liquidated this year due to receivables.
Thanks in advance

The covenant is subtracted from the adjusted sales price because it is reported separately. I haven't look at the 6252 but I remember a line where a subtraction is entered when the profit percentage is being calculated.

Maybe someone else will jump in and walk you through the 6252. I was just helping you get to the true sale price.

[BOB W]

confused on one thing on your calculation My client did receive $60,000 are you counting only the $30,000 as a down payment because of dates. Because the agreement states $240,000 as installment not $270,000. Thanks

Review my post> you will see the total interest that needs to be subtracted from the $300,000. I am not using $270,000, it is just coincidence that the adjusted sale price is about $270,000.

[DONNA ASTON]

Sorry

confused on one thing on your calculation My client did receive $60,000 are you counting only the $30,000 as a down payment because of dates. Because the agreement states $240,000 as installment not $270,000. Thanks

[DONNA ASTON]

Bob

Thank you so much for all your help. So If after all the posts the $271,537.38 goes on line 5 of the 6252 and $60,000 less yearly interest is line 21 of 6252. Back to one of the posts on covenant not to compete and is considered ordinary income and only capital gains qualify for installment method reporting. Is the total non-compete amt reported this year on the on part II of the 4797? The s corp is not being liquidated this year due to receivables.
Thanks in advance

[BOB W]

OK> Here is the sale price:$ 271,537.68
interest + 28,462.32
total = $ 300,000.00

2010 interest> 1.006.41
2011 interest>10,495.72
2012 interest> 8,341.42
2013 interest> 5,698.47
2014 interest> 2,920.30

THIS IS THE CORRECT CORRECTED COMPUTATION.

2010 INSTALLMENT PRINCIPLE COLLECTED $58,993.59
2010 INTEREST COLLECTED $1,006.41
2010 TOTAL COLLECTED $60,000

Just subtract each year's interest from $60,000 to get the principle collected for each year.

[BOB W]

Bob there are so many posts the non compete is 50,000 stating shall be allocated to the covenant not to compete over 5 years

Not to worry.. Just trying to get all the facts so that the true sale price can be determined. When that is done your installment sale form will workout for you.

[DONNA ASTON]

Bob there are so many posts the non compete is 50,000 stating shall be allocated to the covenant not to compete over 5 years

[DONNA ASTON]

yes he has rec'd as a down payment and is recorded on the P/L $60,000. The remaining "The final $240,000 shall be paid over fice years in annual installments at zero percent(0%) with the first payment of sixty thousand dollars ($60,000) due on October 1st 2011.