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1990 and 1991, he reported the amounts received as termination
payments as income, but not for purposes of self-employment tax.
Because the Agreement was terminated more than 2 years after
its effective date, the termination made petitioner eligible to
receive 5 years of monthly termination payments from State Farm.
Section II of the Agreement entitled "Compensation" did not
include or refer to Section IV entitled "Termination Payments".
For the first post-termination year, Section IV of the
Agreement required each of the State Farm companies to compute
termination payments based on a percentage of petitioner's
compensation during the previous 12 months, which was generally
20 percent of the income generated by personally produced
policies in that year, less any deductions for commission charge-
backs. For the subsequent 4 years of termination payments, each
company was required to pay an amount equal to 1/12th the amount
payable in the first post-termination year, less commission
charge-backs. None of the termination payments depended upon the
length of petitioner's service for State Farm and overall
earnings.
Petitioner had no vested right to receive any termination
payments. The Agreement conditioned such payments upon two
contractual requirements; i.e., (1) returning all of State Farm's
property within 10 days of termination entitled petitioner to 2
months of termination payments, and (2) refraining from competing
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Last modified: May 25, 2011