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as ordinary income. Unless otherwise noted, section references
are to the applicable versions of the Internal Revenue Code.
Rule references are to the Tax Court Rules of Practice and
Procedure.
FINDINGS OF FACT
Some facts are stipulated and are found accordingly. The
stipulated facts and the exhibits submitted therewith are
incorporated herein by this reference. Petitioners are husband
and wife, and they jointly filed a 1999 Form 1040, U.S.
Individual Income Tax Return. They resided in Monterey,
California, when their petition was filed with the Court.
In 1982, Norman C. Eckersley (petitioner) founded the
Pacific Bank in San Francisco, California. Pursuant to a written
employment agreement dated January 11, 1983, petitioner served as
Pacific Bank’s chairman, president, and chief executive officer
with duties customary to those positions. On February 16, 1988,
petitioner and Pacific Bank entered into an employment agreement
(employment agreement) that stated that petitioner would serve a
5-year term of employment as chairman, president, and chief
executive officer of Pacific Bank, with a term beginning on
January 11, 1988.
The employment agreement contained a provision concerning
insurance on the life of petitioner. Paragraph 7 stated:
“Eckersley has obtained insurance on his life from Crown Life
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