In Uncategorized on 06/12/2017 at 16:05

Certain words and phrases should be weighed very carefully before use, especially in litigation. While instances arise where one side swears “black,” and the other “white,” but the answer is not “grey,” or even fifty shades thereof, far too often the answer is one or the other, and not “grey, or even fifty shades thereof.”

Today’s illustrative offering from Judge Nega is Larry Geneser, 2017 T. C. Memo. 110, filed 6/12/17. The date is a milestone for me, but bears not at all on the matter at hand.

Larry is fighting over SE. He spent about 26 years as an IC for an insurance company, and carried a debit. This was a balance of advanced commissions, to be repaid as the commissions were earned. The insurance company gave Larry a 1099-MISC (nonemployee comp) when he stopped selling for them.

Larry didn’t file for that year, claiming he was sick, but hadn’t enough evidence thereof to convince Judge Nega.

The SE issue is based upon Section 1402(k). Payments to life insurance salespeople are not subject to SE, provided same “’do[] not depend to any extent on length of service * * * performed for such company (without regard to whether eligibility for payment depends on length of service)’.” 2017 T. C. Memo. 110, at p. 7.

However, Larry’s contracts with the insurer (AIL) are in evidence.

“Petitioner and AIL entered into several State general agent contracts.  One contract (effective October 20, 2003) set forth a vesting schedule for commissions that was dependent on an agent’s length of service at AIL and stated that ‘all (100%) of the commissions earned following the General Agent’s termination date shall be vested’ if the agent has ‘completed ten years of continuous service’.  The last contract between petitioner and AIL (effective August 1, 2004) stated that petitioner, for the one year period beginning on the date of termination, ‘will not engage in the life or health insurance business in any territory possessed by the State General Agent during the year proceeding termination, utilizing the union, credit union, or association sales procedures of the company.’  That contract also stated that ‘[c]ommissions are determined by the schedule in effect at the time the insurance is issued’.” 2017 T. C. Memo. at p. 3.

Larry is represented by counsel. There follows an example of the sort of thing that ages counsel.

“Petitioner’s commission payments credited toward his account in 2010 were dependent on his length of service at AIL.  Accordingly, petitioner does not meet the requirements of section 1402(k).  Petitioner’s testimony that he ‘absolutely’ meets all the requirements of section 1402(k) exemplifies self-serving testimony and, apart from being neither convincing nor persuasive, is inherently incredible. Petitioner may not exclude the $903,707 in commission payments from his net earnings from self-employment under section 1402(a), and those earnings are therefore subject to self-employment tax under section 1401.  See Rule 142(a).” 2017 T. C. Memo. 110, at p. 7.

As a well-known on-line chess lecturer says “And we can stop here.”



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