Covenants not to compete likely to be looked at even more closely by Service
Article Abstract:
Capital gains in the sale of a business are now being taxed as ordinary income. This will encourage purchasers to demand that a high portion of the sale price be allocated to a covenant not to compete, which can be deducted over the period of the covenant. The purchaser must have thorough documentation establishing the validity of the allocation. The IRS is expected to look closely at such transactions and often disregard express allocations, especially in sales of service businesses in which a covenant not to compete usually has the sole purpose of protecting the goodwill of the firm. The IRS is also expected to look closely at any sale in which the allocation for a covenant not to compete is above 10% of sale price.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1988
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Guidelines issued by Service on capitalization of production interest
Article Abstract:
Interest expenses must be capitalized if incurred during the 'production period' and allocable to property that has a long useful life, an estimated production period of more than two years, or a cost of more than $1 million with an estimated production period of more than one year. IRS guidance concerning these requirements is reviewed, including clarifications and examples concerning such issues as production periods, prior expense interest, traced debt, avoided cost debt, direct and indirect use, and related-party rules.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1988
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Interest on over- and underpayments is not always what the Service says it is
Article Abstract:
Provisions for payment of interest by taxpayers or by the Internal Revenue Service (IRS) when taxes are under- or overpaid have undergone significant changes, including rate adjustments, during the last several years. Information is presented that enables practitioners to verify IRS calculations of rates of interest, periods upon which interest is due, whether interest is properly compounded, and whether interest can be abated.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1989
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