James J. and Sandra A. Gales - Page 3




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          virtue of having made joint returns with her husband.  Hereafter,            
          we shall use the term “petitioner”, in the singular, to refer                
          only to petitioner James J. Gales.                                           
          Petitioner’s Engagement by International Marketing Agencies, Inc.            
               During 1992 and 1993, petitioner was engaged as a national              
          marketing director by International Marketing Agencies, Inc.                 
          (IMA), an insurance broker that sold health insurance to small               
          businesses.  Petitioner was responsible for IMA sales for the                
          territory west of the Mississippi River.  He would recruit agents            
          to sell insurance in various territories he established.  As well            
          as selling insurance directly and receiving commissions from                 
          those sales, petitioner received an “override commission” on                 
          insurance sold by agents he recruited.                                       
          Petitioner’s Agreement With IMA                                              
               Petitioner’s engagement by IMA was governed by an agreement             
          entered into between petitioner and IMA on February 15, 1989.  As            
          subsequently modified, that agreement (the agreement) was in                 
          effect in 1992 and 1993.  The agreement provides that petitioner,            
          as an independent contractor, is engaged for the purpose of                  
          soliciting and obtaining applications for insurance offered by               
          insurance companies represented by IMA.  Among the terms and                 
          conditions of the agreement are the following:                               
               COMMISSIONS WHILE UNDER CONTRACT                                        
               1)   You [petitioner] will earn commissions, in                         
                    the amount shown on the last page of this                          
                    contract, on policies or certificates written                      
                    by you as premiums are earned by the CO [the                       



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