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folders that he purchased, claim draft books, rate books, agent’s
service texts, and a computer. He maintained much of the
information regarding the policies and policyholders on the
computer. He fully complied with the provision in the agreement
for return of property to State Farm.
The successor agent hired the two employees previously
employed by petitioner and assumed petitioner’s telephone number.
The successor agent also worked with petitioner on occasion prior
to petitioner’s retirement to meet policyholders and to ask
questions. The successor agent opened an office in the vicinity
of petitioner’s office. When the termination was completed,
petitioner had returned all of the assets used in the agency to
State Farm and the successor agent.
III. Tax Return and Notice of Deficiency
Petitioners timely filed their 1997 Federal income tax
return. They reported the income of $38,622 from the termination
payment which petitioner received in 1997 as long-term capital
gain on Schedule D, Capital Gains and Losses. Petitioners
attached a two-page statement to Schedule D on which the
termination payment was described as an annuity payable over 5
years.5 The annuity was described as a sale of assets to State
5 Timing of the recognition of income is not at issue. The
record does not indicate how State Farm treated the termination
payment on its return.
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Last modified: May 25, 2011