Commercial Litigation Update

Restrictive covenants entered in connection with the sale of a business occupy a different place than ordinary employment noncompetes. In a sale transaction, the buyer is not simply trying to limit a former employee’s next job. The buyer is paying for goodwill, customer relationships, confidential information, and the seller’s promise not to immediately undermine the value of what was sold.

In many cases, the payment of restitution by a party in a lawsuit involving the government or a governmental entity creates a tax-deductible business expense under Title 26, United States Code, Section 162(f) (hereinafter, “Section 162”). When it comes to violations of the False Claims Act, the Anti-Kickback Statute, Stark Law, or even common law fraud claims and contract disputes, understanding how this statute operates can offer substantial short- and long-term tax-benefits to entities facing stiff financial recoupments.  While it is unlikely that the costs of an investigation or restitution order will ever generate a financial net-gain for the entity footing the bill, it is important to appreciate that restitution and proactive remediation costs are viewed differently by both government enforcers (i.e. prosecutors) and tax-collectors, compared with other types of remuneration. Recognizing that there is a difference can, in some cases, help mitigate significant financial burdens.