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repayment was secured by future earned commissions; we found that
the advance commissions were loans, whose receipt was not an item
of gross income.
The agreement provides that it is to be construed pursuant
to the laws of the State of Texas and that repayment of advance
commissions is to be on demand. Petitioner’s obligation to repay
the advance commissions is secured by earned commissions, but
respondent has provided no authority that, under Texas law, IMA’s
recourse upon a default by petitioner was limited to earned
commissions. Indeed, respondent appears to concede petitioner’s
personal liability to repay the advance commissions: “Respondent
submits that, in the instant case, there was never any current
personal liability of petitioner. The personal liability was
merely contingent and arose only in the event the earned
commissions did not cover the advanced commissions and this was
unlikely to occur.” (Emphasis added.) Respondent’s argument is
not based on the absence of personal liability as a matter of
law, but on the likelihood that petitioner’s earned commissions
would always be adequate to cover his advance commissions and
payment would never be demanded of him. In fact, petitioner
testified that, on occasion, repayment was demanded of him and he
repaid some of the advance commissions. We believe petitioner,
and we have found accordingly. In the May 1 letter (terminating
petitioner’s engagement by IMA), reference is made to reducing
petitioner’s debit balance to IMA by his earnings for the vesting
term of the agreement “if applicable”. The vesting provisions in
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