Tax Considerations in Business Sale Non-Competition Covenants

Covenants that restrict the seller of business assets from competing against the purchasing party are common. Tax implications arise in these agreements, particularly regarding the value of goodwill. An executive order signed by President Biden in July is a factor to consider if your client is engaging in a transaction involving a noncompete. Specifically, the executive order encourages the Federal Trade Commission (FTC) to ban or limit the use of noncompete clauses that limit mobility or otherwise restrict employees from occupational engagements. This recognizes that noncompetes can be considered anticompetitive restraints of trade. You may wish to advise clients poised to implement noncompete covenants to consider new FTC Chair Lina Khan’s likely response to the executive order.

READ NOW »   

Related Content

• Sweeping Biden Order Aims to Attack Lack of Competition
  Read more about President Biden’s expansive executive order aimed at boosting competition across the U.S. economy and lowering prices for consumers and increasing worker pay. The order calls on the FTC and the U.S. Department of Justice to “enforce the antitrust laws vigorously and recognizes that the law allows them to challenge prior bad mergers that past administrations did not previously challenge.” 

• Acquisition Agreements Key Covenants Chart
  Review these considerations and tips that can be used when drafting and negotiating acquisition agreement covenants, along with select examples of covenants that are likely to be included. 

Practical Guidance Updates

Featuring the latest updates from your Practical Guidance account.  

• Tax Key Legal Developments Tracker (Federal)
  Stay informed on new developments.
  • Business Entities: IRS provides guidance regarding elections and revocations related to Section 2303(e) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), providing special rules for taxpayers with net operating losses for any taxable year beginning in 2018, 2019, or 2020, all or a portion of which consists of a “farming loss,” as defined by R.C § 172(b)(1)(B)(ii); Revenue Procedure 2021-14.
  • Business Entities: IRS issues a legal memorandum stating that swapping certain cryptocurrencies, like Bitcoin, for others cannot qualify for gain deferral under R.C. § 1031, on the basis that they are not like-kind to one another. IRS Legal Memo (ILM) 202124008.
  • Exempt Organizations: IRS announces that three new extracts for tax-exempt organization financial data for calendar year 2020 are now available on its Tax Statistics web page. These annual extracts contain selected financial data from Forms 990 and 990-PF, or Section 4947(a)(1) Trust Treated as Private Foundation processed for program administrative purposes during calendar year 2020. Exempt Organization Financial Data, Calendar Year 2020.

• Document alerts allow you to stay current on legal developments that affect your practice. Find out how to set up your document alerts.

• New Practical Guidance Content
  • Federal Fuel Excise Taxes
  • Marketplace Facilitator Laws State Law Survey
  • Tax Accounting and Auditing Issues for 2021
  • Tax and Accounting Aspects of Virtual Currency
  • Minimum Tax Likely to Be in 2022 Budget Bill
  • Top Federal Tax Policies of 2021: Midyear Report
  • Top 4 Federal Tax Cases of 2021: Midyear Report
  • The ABCs of Expatriation in These Chaotic Times

• Recently Updated Practical Guidance Content
  • R.C. Section 163(j) Earnings-Stripping Rules and Guarantees Checklist
  • Summer Associate Resource Kit: Tax

Experience results today with practical guidance, legal research, and data-driven insights—all in one place.

Experience Lexis+