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Petitioner sold insurance successfully for many years. From
December 1997 to December 1999, petitioner worked for Farmers.
During his employment, Farmers advanced funds to petitioner to
help him establish a business office. When his employment ended,
Farmers concluded petitioner was required to repay the advanced
funds. Farmers recorded an account receivable from petitioner on
its books and sent him letters demanding repayment of the
advances. Farmers calculated that, as of January 2002,
petitioner owed the company $16,644.74.
For the taxable year 2002, Farmers issued petitioner a Form
1099-MISC, Miscellaneous Income, reporting $666.69 of nonemployee
compensation. Petitioners did not receive payment, however,
because Farmers applied the $666.69 towards the aforementioned
account receivable. Petitioners did not report the $666.69 on
their tax return. Respondent initially determined that the
entire amount was includable in petitioners’ gross income, but
now concedes all but $15 of this adjustment. The parties
stipulated that the $15 represents commission income.
2. Petitioner’s Involvement With MetLife
In or about July 2002, petitioner entered into a Special
Agent Auxiliary Agreement (the agreement) with MetLife. The
agreement provided that petitioner would work as an independent
contractor for MetLife for a 10-to-14 week training period.
After that time, MetLife would either terminate the relationship
or offer petitioner permanent employment. Petitioner completed
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