Everett J. Diers - Page 6

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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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