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Ps reported the payment on their 1997 Federal
income tax return as a long-term capital gain. In a
notice of deficiency issued to Ps, R disallowed capital
gain treatment and determined that the payment was
ordinary income. R did not impose self-employment tax
on the income.
Held: P did not own a capital asset or sell a
capital asset to State Farm, nor did the termination
payment P received from State Farm represent payment
for transfer of a capital asset to State Farm or the
successor agent. Held, further, that Ps are not
entitled to capital gain treatment for the termination
payment received from State Farm in 1997. Held,
further, Ps must treat the payment received in 1997 as
ordinary income.
Thomas J. O’Rourke, for petitioners.
Roger W. Bracken, for respondent.
OPINION
DAWSON, Judge1: This case was assigned to Chief Special
Trial Judge Peter J. Panuthos pursuant to the provisions of
section 7443A(b)(5) and Rules 180, 181, and 183.2 The Court
1 I wrote the Court’s majority opinion in Jackson v.
Commissioner, 108 T.C. 130 (1997), holding that termination
payments received by the insurance agent from State Farm were not
subject to self-employment tax under secs. 1401 and 1402, I.R.C.
I also joined Judge Parr’s concurring opinion indicating that
such payments could be treated as being in the nature of a buyout
of the agent’s business. After further consideration, I am now
persuaded by the opinion of Chief Special Trial Judge Panuthos
that this petitioner (agent) is not entitled to capital gain
treatment for the termination payment he received.
2 Section references are to the Internal Revenue Code in
effect for the year in issue. All Rule references are to the Tax
(continued...)
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