Juan owns 40% and Mario owns 60% of Crispy Donuts, Inc. (CDI). Juan wants to buy out Mario's interest in CDI, so he arranges a stock sale agreement under which CDI will redeem (purchase) all of Mario's shares for $900,000. This will then make Juan the sole shareholder of CDI. Juan wants to ensure that Mario does not open a competing donut business nearby so he also has a covenant-not-to-compete drawn up at the same time as the stock sale agreement.

Under the terms of the covenant-not-to-compete, Mario cannot open another donut business within a 10 mile radius for a period of five years. During this 60 month period, CDI will pay Mario $9,000 per month in return for his agreement not to compete. CDI wants to know over what time period it should amortize the covenant-not-to-compete.

Consider any ethical issues that may arise. Cite proper IRS regulation(s) to support your point of view.