Capital gain treatment denied for agent's termination pay. (Tax Facts).(Brief Article)

National Underwriter Life & Health-Financial Services Edition, June, 2002 by King, Sonya E.

A retired agent's attempt to treat his termination payment as capital gain was recently rejected by the Tax Court, which held that the payment constituted ordinary income.

Warren Baker worked as a State Farm agent for 34 years. Baker, an independent contractor, developed his own customer base, chose his office location (with State Farm's approval), hired and paid employees, paid overhead expenses, and deposited premiums collected on behalf of State Farm to a trust fund.

The agent's agreement between Baker and State Farm stated that all property furnished by the company to Baker (e.g., manuals, forms, records, supplies, etc.) remained the property of State Farm. This included all data relating to policyholders. Upon termination of the agreement, Baker...

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