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forgiveness of the debt to American in 1995 in exchange for
American’s right to keep petitioner’s renewal commissions.
Respondent argues that petitioner received income from the
renewal commissions when American credited these commissions
against the outstanding advances and loans in 1996. For the
reasons stated below, we agree with respondent.
Generally, income is taxable when it is received. Sec. 451.
When a person receives amounts without an obligation to repay
them and without restriction as to their disposition or use,
those amounts are income to the person. James v. United States,
366 U.S. 213 (1961). The proceeds of a loan are generally not
taxable as income because the benefit of the income is offset by
an obligation to repay. United States v. Rochelle, 384 F.2d 748
(5th Cir. 1967); Milenbach v. Commissioner, 106 T.C. 184, 195
(1996) affd. in part, revd. in part and remanded 318 F.3d 924
(9th Cir. 2003). The determination of whether moneys received
are the proceeds of a loan or income is to be made upon
consideration of all of the facts. Fisher v. Commissioner, 54
T.C. 905, 909 (1970).
In the context of insurance agents who receive advances
based on future commission income, whether those advances
constitute income depends on whether, at the time of the making
of the payment, the agent had unfettered use of the funds and
whether there was a bona fide obligation on the part of the agent
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