James J. and Sandra A. Gales - Page 9


                                        - 9 -                                          
          Method of Accounting                                                         
               Petitioner computed taxable income resulting from his                   
          engagement by IMA under the cash receipts and disbursements                  
          method of accounting.                                                        
          Petitioner’s Payments                                                        
               On occasion, when called upon to do so by IMA, petitioner               
          repaid to IMA a portion of the amounts advanced to petitioner                
          under the agreement.                                                         
          Termination of Petitioner’s Engagement by IMA                                
               Petitioner’s engagement by IMA was terminated by letters                
          from IMA dated March 31 and May 1, 1995 (the March 31 and May 1              
          letters, respectively).  Among other things, the March 31 letter             
          reminded petitioner of his responsibility for any balance on his             
          agent statement.  In pertinent part, the May 1 letter states:                
                    As of your last statement(s) produced, summaries                   
               of which are attached, your account is shown to have an                 
               advanced debit balance in the amount of $521,628.69,                    
               upon which the company has a first lien and security                    
               interest.  Pursuant to your Contract [the agreement],                   
               this indebtedness is due in full upon demand by IMA.                    
               However, demand will not be made until this                             
               indebtedness exceeds the amount of your projected                       
               earned commissions for the next six (6) months, as                      
               determined solely by IMA.  Your debit account will                      
               increase by assessment of uncollected charge backs,                     
               applicable lapses, and debit balance interest charges                   
               and/or any other IMA related debts incurred during that                 
               period of time.  Your debit balance will be reduced by                  
               your total earnings for the next six (6) months (or                     
               longer for your contract’s vesting term, if                             
               applicable).  However, if you would like to avoid any                   
               additional interest charges, we will accept payment in                  
               full at this time.  Please send your check to the                       
               address shown on this letterhead, to the attention of:                  
               Agent Accounting.                                                       






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