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petitioners’ net income from all of the agency’s revenues, the
entire amount of petitioners’ 2003 Schedule C net income is
derived from premium renewals.4 Respondent references Lencke v.
Commissioner, T.C. Memo. 1997-284, for the well-settled rule that
self-employment income includes commission payments to a former
insurance agent of previously earned commissions and asks us to
find that the principles of Lencke apply to this case.
It is well established that renewal commissions received by
a retired insurance agent are subject to self-employment tax as a
form of deferred compensation. Erickson v. Commissioner, 1 F.3d
1231 (1st Cir. 1993), affg. without published opinion T.C. Memo.
1992-585; Jackson v. Commissioner, 108 T.C. 130, 133-135 (1997);
sec. 1.1402(a)-1(c), Income Tax Regs. However, income must arise
from some actual (whether present, past, or future) income-
producing activity of the taxpayer before it becomes subject to
self-employment tax. Newberry v. Commissioner, supra at 446.
Earnings from past income-producing activities must be tied to
the quantity or quality of the taxpayer’s prior labor. Schelble
v. Commissioner, 130 F.3d 1388 (10th Cir. 1997), affg. T.C. Memo.
1996-269.
Although Mr. Edwards and Ms. Payne testified that Mr.
Edwards did not sell insurance in 2003 and had been retired from
4 Petitioners’ net income from the Edwards agency in 2003
was $62,483, whereas the agency’s gross receipts from renewals
were $154,179.
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