Here is a recent case that might interest any medical practice that has to allocate a sum of money to a covenant not to compete. This usually occurs when a medical practice interest is purchased.
An S corporation agreed to redeem a 23% shareholder's stock for $255,908 plus a $400,000 for a one year covenant not to compete. Taxpayers (the S corporation plus 13 shareholders) argued that the covenant was not subject to IRC Sec. 197 and so was deductible over its one-year life. The IRS countered that the covenant was a Section 197 intangible asset amortizable over 15 years, beginning with the month of the acquisition. In affirming the Tax Court's decision that the covenant is 15-year amortizable property, the 1st Circuit concluded that IRC Sec. 197(d)(1)(E) (which includes a covenant not to compete in the list of Section 197 intangibles) "includes any covenant not to compete entered into in connection with the acquisition of any shares—substantial or not—of stock in a corporation that is engaged in a trade or business." In other words, Congress intended IRC Sec. 197(d)(1)(E) to apply to any stock acquisition, not just stock acquisitions that are considered "substantial." Recovery Group, Inc. v. Comm. , 108 AFTR 2d 2011-XXXX (1st Cir.).