James J. and Sandra A. Gales - Page 14


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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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