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quality of the taxpayer’s prior labor, rather than the mere fact
that the taxpayer worked or works for the payor.” Milligan v.
Commissioner, 38 F.3d at 1098.
The Court of Appeals found that the taxpayer’s earnings were
not tied to the quantity of his prior labor. The Court of
Appeals ruled that the 2-year qualification requirement related
only to the taxpayer’s eligibility for termination payments; the
payment amounts did not depend on the taxpayer’s length of
service beyond the period of eligibility. The Court of Appeals
pointed out that it did not matter whether the taxpayer had
worked for State Farm for 2 years or 20--the payments would in
either case be the same. Because the payment amounts did not
depend on the length of service or overall earnings, the payments
were not tied to the quantity of the taxpayer’s services.
In the same vein, the Court of Appeals held that the
termination payments did not depend on the quality of the
taxpayer’s prior service. The Court of Appeals recognized that
the payments were based on the taxpayer’s final year’s
commissions. According to the Court of Appeals, “At most, the
amount of the Termination Payments, not the payments themselves,
actually arose from Milligan’s business activity.” Id. at 1099.
The Court of Appeals went on to note that even the amount was not
entirely related to Milligan’s prior earnings, because of the
potential for chargebacks based on future policy cancellations
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