Mario O. and Elsie R. Garza - Page 4

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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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