Warren L. Baker, Jr. and Dorris J. Baker - Page 1

                                   118 T.C. No. 28                                    

                               UNITED STATES TAX COURT                                

              WARREN L. BAKER, JR. AND DORRIS J. BAKER, Petitioners v.                
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 599-00.                 Filed May 29, 2002.                 

                    P (husband) entered into “agents agreements”                      
               (agreement) with State Farm Insurance Cos. (State Farm)                
               wherein P agreed to write insurance policies                           
               exclusively for State Farm.  The agreement provided                    
               that all property including information about policy                   
               holders belonged to State Farm.  P’s compensation was                  
               based on a percentage of net premiums.  The agreement                  
               also contained detailed provisions for termination.                    
               P was entitled to a termination payment based on the                   
               percentage of policies that either (1) remained in                     
               force after termination or (2) were in force for the 12                
               months preceding termination.  P and State Farm did not                
               negotiate the terms of the agreement.                                  
                    P retired after approximately 34 years of                         
               operating as an independent agent for State Farm.                      
               Pursuant to the termination agreement P returned                       
               account information, computers and the like to State                   
               Farm and the successor agent.  P received a payment of                 
               $38,622 in 1997 from State Farm pursuant to the                        
               termination agreement.                                                 

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