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commissions on policies he had sold before his departure.
Instead of paying these commissions to petitioner, American Life
diverted the commissions to his accounts showing balances owed by
petitioner for the advances and expense payments previously
described. When American Life previously made advances to
petitioner, he was not taxable on such advances because the
advances were loans secured and payable through future earned
commissions. Beaver v. Commissioner, 55 T.C. 85, 91 (1970);
Diers v. Commissioner, supra. When American Life applied the
renewal commissions to petitioner’s outstanding account balances,
petitioner’s obligation to repay the loans was reduced by those
amounts, and the reduction of his obligations constituted his
receipt of taxable income. Diers v. Commissioner, supra; Newmark
v. Commissioner, 311 F.2d 913, 915 (2d Cir. 1962), affg. T.C.
Memo. 1961-285. Therefore, the Court holds that petitioner
received commission income during 1999, 2000, and 2001, in the
amounts of $20,957, $17,705, and $14,673, respectively, as
determined in the notice of deficiency. Respondent, therefore,
is sustained on this issue.
The second issue is whether petitioners are liable for
self-employment taxes for 1999, 2000, and 2001 under section 1401
based on the aforesaid income.
Section 1401(a) imposes a tax upon the self-employment
income of every individual. In general, self-employment income
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