TAXATION-FEDERAL INCOME TAX-SALE OF GOODWILL TREATED AS SALE OF A CAPITAL ASSET

Plaintiffs were partners in a wholesale produce business which was well established and had a large goodwill value in the area. Plaintiffs sold the whole business, including goodwill, to another produce dealer, with a specific portion of the sale price being allocated to the sale of the goodwill. Included in the sale contract was an agreement by the sellers not to compete with the purchaser for a certain number of years, but it was understood by the parties that none of the sale price was given in consideration of this agreement. Plaintiffs returned the amount received from the sale of goodwill as gain from the sale of a capital asset.

The Commissioner of Internal Revenue assessed a deficiency on the theory that this amount should be considered ordinary income. On a petition to the United States District Court, it was held that the sale of goodwill constitutes the sale of a capital asset. Cox v. United States, (D.C. Ariz. 1951) 99 F. Supp.

518.