Business & farm

Your facts are somewhat confusing; you note a noncompete with a value, then say no value was assigned, then indicate it should be $25,000.

Hopefully the agreement has not been finalized as you need to get some professional input and documentation put together.

• Generally, when a corporation distributes, sells, or otherwise disposes of an installment note receivable, gain or loss is measured by the excess of the amount realized (in the case of a sale or exchange) or FMV (in the case of a distribution or other disposition) over the basis of the note.
• This means, if you have entered into an installment agreement for the sale of the business, distribute this note out in liquidation, you will have a taxable event and no cash.
• The key in these instances is that you need to adopt a plan of liquidation FIRST.
• If an installment obligation is acquired by an S corporation upon the sale of its assets during the 12-month period beginning on the date of adoption of a plan of complete liquidation, and the installment note is distributed to the shareholders and the liquidation is completed within the 12-month period, no gain or loss is recognized by the S corporation upon the distribution of the installment note.
• I'm not sure where this leaves you based on limited facts.
• I would also assume that the noncompete payments will be reported to you on a 1099.  As a result, I would not include this component on any installment sale form 6252.
• So essentially you have $600,000 to be reported on form 6252 with no basis.  Capital gain will be recognized as you receive the cash.