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married and resided together at all times during the years at
issue.
Petitioner was employed as an independent insurance agent
(agent) with American Life from 1987 to 1988 and again from 1989
to 1998.3 As an agent for American Life, petitioner sold
insurance policies. For each policy he sold, petitioner earned a
commission. American Life would advance to petitioner the
anticipated first-year commission on that policy. This
advancement was referred to as a loan against anticipated
first-year commissions and not taxable at the time of receipt.
In the event the policy was terminated before the year ended,
petitioner was obligated to pay the commission back to American
Life. Additionally, American Life paid certain expenses for
petitioner that were added to petitioner’s outstanding account
balances due to American Life.4 According to account ledgers
produced by respondent from American Life, during the term of
petitioner’s employment, petitioner received advances against
3There is a dispute as to whether petitioner terminated his
employment in 1997 or 1998. Petitioner contends that he was no
longer employed by American Life in 1997; however, he stipulated
to working for American Life until 1998. This discrepancy has no
bearing on the issue.
4At the time of the audit, Ms. Garza went through the
documents provided by American Life, which set out the advances
and expenses paid by American Life on petitioner’s behalf.
Ms. Garza contacted American Life requesting an explanation of
the expenses on the account. Petitioners presented no evidence
at trial with respect to these expenses.
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