Non Compete Fee

[Taxman VA]

Partnership dissolved last Nov 1st, 2011.

As part of the sale of the partnership, the buyer agreed to pay seller a non compete fee of $1,200 so the seller would not engage in any activities relating to the normal business services.

My question is this "Is this fee paid by the Partnership taxable income to the seller"? If so, should it be reported on a 1099 as other income?

Thanks,


Taxman VA

[Gary2]

In a simple sale of a sole proprietorship, a non-compete agreement is considered a section 197 intangible, included as part of the selling price, and reported as class VI on Form 8594.

With a partnership, assuming this is one partner buying out the other, I'm not sure exactly how it would be reported, or whether or not a 1099 is required. But I'd be very surprised if the proper approach didn't somehow include it in the selling price somehow.

[Taxman VA]

Non Compete Fee

In speaking with another tax professional, he told me that the non compete fee is ordinary income and does get reported on Form 1099 MISC - other income box.

Since the partnership paid it is a deduction and should be considered income to the recipient.

This is where I'm parked as of this moment.

Thanks for your input Gary2.

Taxman VA