Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red executed a document under which Clyde?s stock in Red would be redeemed and Clyde would agree not to compete against Red in its geographic service area. After extensive negotiations between the parties, Clyde agreed to surrender his Red stock in exchange for $600,000. Clyde's basis in his shares was $143,000, and he had held the shares for 17 years. The agreement made no explicit allocation of any of the $600,000 to Clyde's agreement not to compete against Red. You are Clyde?s tax preparer. How should Clyde treat the $600,000 payment on his 2013 tax return? 1. Prepare a memo for the tax files and

Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red executed a document under which Clyde's stock in Red would be redeemed and Clyde would agree not to compete against Red in its geographic service area. After extensive negotiations between the parties, Clyde agreed to surrender his Red stock in exchange for $600,000. Clyde's basis in his shares was $143,000, and he had held the shares for 17 years. The agreement made no explicit allocation of any of the $600,000 to Clyde's agreement not to compete against Red. You are Clyde's tax preparer. How should Clyde treat the $600,000 payment on his 2013 tax return? 1. Prepare a memo for the tax files and 2. Write a letter to Clyde that explains the position taken on the return