When estimating the fair market value of a non-competition agreement for Internal Revenue Code Section 280G purposes, it is vital to understand if there are any relevant court rulings or other authoritative guidance in the relevant state that could affect the value of the non-competition agreement. For example, a recent District of Arizona opinion touched upon aspects including the scope of activity, the geographic scope, and the duration of the non-compete agreement, all issues that drive the value of a non-compete agreement. Please see the quoted article from Perkins Coie for further details regarding the court ruling.
States have varying laws, court rulings, and other authoritative guidance that can have a significant impact on the value of a non-competition agreement given the jurisdiction. The valuation of a non-competition agreement should incorporate these factors and assess how they do or do not affect the fair market value and hence the IRC Section 280G golden parachute calculations
In considering whether the restriction was reasonably limited in time and space so as not to be broader than needed to protect the buyer's legitimate interest, the Berkadia court found that although protecting the "good will" interest related to the sale of a business is a legitimate purpose for a non-compete, the scope of activity, the geographic scope, and the duration of the non-compete agreement at issue were unreasonable based on the facts presented in the case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
