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control of it. The amount is unaffected by his income
during any prior period, by the total number of
policies written over his career, by the total time
period he served as an agent, or even by the length of
his service to Nationwide. In other words, the amount
is not “tied to the quantity or quality” of his labor
in any meaningful way. [Id. at 1130.]
An offshoot of the tree sprouted in Schelble v.
Commissioner, 130 F.3d 1388 (10th Cir. 1997), affg. T.C. Memo.
1996-269. There, the “extended earnings” of an American Family
Life Insurance Co. independent agent were held to be subject to
self-employment tax. Both the Tax Court and the Court of Appeals
for the Tenth Circuit distinguished Milligan on its facts, on the
ground that the payments to the taxpayer in Schelble depended on
the quantity and quality of his prior self-employment services.
In general, the extended earnings payments were
calculated based on a percentage of the renewal service
fees paid to the agent during the six- or twelve-month
period preceding the month the Agreement terminated.
The percentage was based upon the agent’s length of
consecutive service for the Companies immediately
preceding termination of the Agreement. * * * [Id. at
1390.]
Unlike Milligan, the amount of termination payments to be
received by the taxpayer in Schelble depended on the length of
his service to the insurance company and were tied entirely to
his earnings during the 12-month period prior to termination
without being subject to any posttermination adjustments for
events outside of his control (such as, in Milligan, chargebacks
for policy cancellations after termination of the agreement).
The Court of Appeals in Schelble distinguished Milligan and held
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