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event, such as policy cancellations or failures to collect
premiums.
Following cancellation of the agreement, petitioner received
payments from the companies of $439,656, $212,466, and $106,233,
in 1996, 1997, and 1998, respectively (collectively, the
payments). Petitioners reported the payments as income from an
installment sale, from the sale of “Insurance Agency”, subject to
the favorable long-term capital gains rates.
Discussion
The principal adjustments giving rise to the deficiencies in
question are respondent’s reclassifications of the payments,
reported by petitioners as installment sale gains (subject to the
favorable long-term capital gains rates), as ordinary income
subject to self-employment taxation.1 Other adjustments made by
respondent are derivative of those adjustments and are not a
matter of dispute between the parties. We have addressed
adjustments similar to the principal adjustments on other
occasions, e.g., Farnsworth v. Commissioner, T.C. Memo. 2002-29;
Schelble v. Commissioner, T.C. Memo. 1996-269, affd. 130 F.3d
1388 (10th Cir. 1997), and the rules are relatively clear. We
1 Notwithstanding that the agreement appears to contemplate
that contract value would be paid in four equal semi annual
installments, the parties appear to agree that the payments (in
their varying amounts) constitute the installment payments of
contract value. We shall proceed based on that assumption.
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