Payments for non-compete covenent

[Unregistered]

Client told me today that he has paid mucho dinero to someone for a non-compete. Do these payments need to be reported to IRS on an information return, such as a 1099-MISC? If so, is SS tax owed by the receipient? My first time involved with non-compete. So far, I have not found what seems to be a definitive answer.
Thanks

[John of PA]

No

My guess is no. No 1099 is used to report the sale of a business, even if the only asset sold is a non-compete agreement.

[Unregistered]

Non-compete

Thanks, John.

This is not the sale of a business. It is a valuable employee that left.



This is Phyl. I'm having problelms with logging in for some reason.

[Jiggers]

Non-Compete

The payer should issue a 1099MISC to the recipient. This goes in the box for "Other Income". It is not subject to self-employment tax.

The payer will amortize the non-compete payment over 15 years as a section 197 intangible, irregardless of when the payment was made. If the payment was made in one year, the payer does not get a full deduction for that amount that year.

[jimmcg]

Non Compete Payment

As I recall 1099MISC is issued to payee as other income if payor is trade or business. Researched this a couple of years ago for a client paying for a non compete and that is what I determined at the time

[jainen]

1099misc

>>1099MISC is issued to payee as other income if payor is trade or business<<

Isn't the whole point of a non-compete that the payee is NOT in business?

[jimmcg]

Non Compete Payment

Probably why it's called "other income."