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Self-Employment Taxes on Residual and Renewal Insurance
Commissions
From 1973 to July 1989, Mr. Lencke was an insurance agent of
United Farm Bureau Family Life Insurance Company and United Farm
Bureau Mutual Insurance Company (Farm Bureau). He and Farm
Bureau considered their association to be an independent
contractor relationship. While he worked as Farm Bureau's agent,
Mr. Lencke had his own clients, who could not be assigned to a
different agent. He received a 5-percent renewal commission on
the life insurance policies he sold. Throughout his career as an
agent with Farm Bureau, Mr. Lencke maintained his insurance
office in his home. During July 1989, Mr. Lencke became disabled
and decided that he could not continue to work as Farm Bureau's
agent. The relationship was terminated.
In general, when one of its insurance agents becomes
disabled and terminates his or her agency relationship, Farm
Bureau pays the agent a 5-percent renewal commission for a
limited period on the life insurance policies sold by him.
However, Mr. Lencke was concerned that some of his clients would
not renew their Farm Bureau life insurance policies once they
learned that he would no longer be working for Farm Bureau.
Thus, to provide him with a fixed amount of income during the 6
months following his separation from service, and to enable Farm
Bureau to assign his clients to other agents, he and Farm Bureau
agreed, after negotiations, that his previously executed
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