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Commissioner, T.C. Memo. 1994-278 and Lowers v. Commissioner,
T.C. Memo. 1991-75, that the “contract value” payments upon
termination of a Farmers DMAA constitute ordinary income and not
capital gains from the sale of property. In Clark we stated:
Under the 1967 Agreement, all * * * rights or
privileges for the continuing effectiveness of policies
produced on behalf of any of the Companies, including
all records pertaining thereto, were and should at all
times remain the property of Farmers. The short answer
is that petitioner transferred nothing to Farmers. The
contract with Farmers was not sold or exchanged, but
was terminated. On December 31, 1986, petitioner’s
services as a Farmers district manager came to an end.
The local agents that petitioner had obtained for
Farmers remained, as before, local agents of Farmers.
* * *
See also Deal v. Commissioner, T.C. Memo. 1973-49 (ordinary
income treatment for termination payment by Farmers under earlier
form of Farmers DMAA).
Like the taxpayers in Clark, Lowers, and Deal, Mr.
Farnsworth did not sell any property to Farmers. Farmers owned
all the business property used by Mr. Farnsworth. The DMAA
between Mr. Farnsworth and Farmers provides:
The District Manager understands and agrees that all
lists and records of any kind pertaining to
policyholders or expirations, and also the information
contained therein, are the secret and confidential
property of the Companies and shall never be used or
divulged, except as specifically authorized by, and for
the benefit of, the Companies.
The payments Mr. Farnsworth received were expressly in
consideration for the termination of the DMAA contract; the
payments were not made in return for the transfer of specific
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