Erickson v. Commissioner ( 1993 )

USCA1 Opinion

          August 2, 1993        [NOT FOR PUBLICATION]




                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 92-2392

                     NORMAN D. ERICKSON and MARILYN J. ERICKSON,

                               Petitioners, Appellants,

                                          v.

                          COMMISSIONER OF INTERNAL REVENUE,

                                Respondent, Appellee.

                                 ____________________

                       APPEAL FROM THE UNITED STATES TAX COURT

                           [Hon. Francis J. Cantrel, Judge]
                                                     _____

                                 ____________________

                                        Before

                                 Selya, Circuit Judge,
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                           Campbell, Senior Circuit Judge,
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                               and Cyr, Circuit Judge.
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                                 ____________________

            Charles  J. Reilly with  whom Reilly  Law Associates  was on brief
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        for petitioners.
            Alice  L. Ronk,  Appellate Section,  Tax Division,  Department  of
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        Justice, with whom James A. Bruton, Acting Assistant Attorney General,
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        Gary R. Allen,  Chief, Appellate Section, Tax  Division, Department of
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        Justice,  and  Bruce  R.  Ellisen, Appellate  Section,  Tax  Division,
                       __________________
        Department of Justice, were on brief for respondent.


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                      CAMPBELL, Per Curiam.  The Internal Revenue Service
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            determined  a deficiency in the 1986 income tax of appellants

            Norman  and Marilyn Erickson.  The issue on appeal is whether

            $50,796 received  by appellants  under  an agreement  between

            Norman Erickson  and the insurance  company for which  he had

            served  as  an  insurance  agent  is  self-employment  income

            subject to the self-employment  tax.  See 26 U.S.C.     1401,
                                                  ___

            1402.   The  United States  Tax Court  found that  it  is and

            upheld the  deficiency determination against  appellants, who

            now appeal.1

                      We   briefly  summarize  the   relevant  facts  and

            applicable  law,  which  are   described  in  detail  in  the

            published opinion of the Tax Court, Erickson v. Commissioner,
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            64  T.C.M. (CCH)  963  (1992).   Norman  Erickson worked  for

            twenty years as a general insurance agent of the Union Mutual

            Life  Insurance  Company  and  related companies.    He  sold

            insurance  as an independent  contractor, earning commissions

            on the policies written  by him and "renewal commissions"  on

            those of his policies that were  renewed.  Appellants concede

            that  Mr. Erickson's commission  income when he  was an agent

            constituted  self-employment  income  subject  to  the  self-

            employment tax.



                                
            ____________________

            1.   The Commissioner does not appeal from the portion of the
            Tax  Court's  memorandum  holding  that  appellants  were not
            negligent within the meaning of 26 U.S.C.   6653(a)(1).

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                      In   November  1983  Union  Mutual  terminated  its

            relationship   with  Erickson  and   all  its  other  agents.

            Erickson  and Union  Mutual  entered into  the General  Agent

            Floored  Commission Leveling  Agreement II in  December 1983,

            providing  for the  payment  to Erickson,  over  a period  of

            fifteen years or more,  renewal commissions that he otherwise

            would  have received if  he had continued  to be an  agent of

            Union  Mutual.  A number of legal  disputes arose in 1984 and

            1985  between Union  Mutual and  other agents,  not including

            Erickson,  apparently concerning  the  computation  of  their

            renewal   commission   payments   under    various   leveling

            agreements.   Union Mutual  settled the disputes  by entering

            into a Settlement Agreement and General Release with all  its

            former agents, including Erickson.  The $50,796 in dispute in

            this  case was  paid  to Erickson  in  1986 by  Union  Mutual

            pursuant to the Settlement Agreement.

                      Section 1401  of  the Code  imposes  a tax  on  the

            "self-employment   income"  of   every  individual.     Self-

            employment income  consists of  the "net earnings  from self-

            employment  derived by an individual . . . during any taxable

            year."   26  U.S.C.    1402(b).    "Net earnings  from  self-

            employment"  is  defined  as  "gross  income  derived  by  an

            individual  from any  trade or  business carried  on by  such

            individual,  less the  deductions  allowed by  this  subtitle

            which are attributable to such trade  or business."  Id. at  
                                                                 ___



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            1402(a).    The Commissioner  determined that  the Settlement

            Agreement   payments   represented  Mr.   Erickson's  renewal

            commissions.  Appellants argued before the Tax Court that the

            Settlement  Agreement   was  a  contract  of   sale  for  Mr.

            Erickson's insurance business.  The parties agree on the law:

            if  the  Settlement  Agreement payments  represented  renewal

            commissions, then they are  taxable as self-employment income

            under 26 U.S.C.   1401.  See Simpson v. Commissioner, 64 T.C.
                                     ___ _______    ____________

            974 (1975); Becker v.  Tomlinson, 62-1 U.S. Tax Cas.  (CCH)  
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            9446, at 84,298,  9 A.F.T.R.2d (P-H)  1408 (S.D. Fla.  1962).

            If,  as appellants contend, the payments were for the sale of

            business  assets,  they  do  not  constitute  self-employment

            income.  See Erickson, 64 T.C.M. at 967.
                     ___ ________

                      The only issue for this court, then, is whether the

            Tax  Court erred  in  finding, id.  at 967-68,  that payments
                                           ___

            under  the Settlement Agreement were  made in lieu of renewal

            commissions  and  were  not  payments  for  the sale  of  Mr.

            Erickson's  insurance business  to Union  Mutual.   Tax Court

            findings as to  the purpose of  a particular transaction  and

            the  intent of the parties involved are findings of fact that

            will  be reversed  only  if clearly  erroneous.   Crowley  v.
                                                              _______

            Commissioner,  962 F.2d  1077, 1080 (1st  Cir. 1992).   Ample
            ____________

            evidence  in  the record  supports  the  Tax Court's  present

            findings.    The  Settlement  Agreement  makes  absolutely no

            reference to a sale of a business or business assets.  On its



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            face,  the  agreement  simply  terminates  and  replaces  the

            Leveling  Agreement II,  which appellants  concede was  not a

            sale  but an  agreement for  the uniform  payment of  renewal

            commissions that  otherwise would  have been received  by Mr.

            Erickson.   The stated purpose of the parties in entering the

            Settlement  Agreement was  to "establish  fully, finally  and

            with certainty  all of their outstanding  obligations arising
                            ___

            out of the general agent contractual relationship between the

            parties."   Moreover, Mr. Erickson admitted  in his testimony

            before the Tax Court  that he owned very few  of the supplies

            and  pieces of  equipment retained  by  Union Mutual.   "His"

            staff  at the insurance office,  which he claims  was part of

            the  sale  transaction,  actually  was on  the  Union  Mutual

            payroll  before the  alleged sale.   No  documentary evidence

            supports his  vague testimony that he  "negotiated" the terms

            of the  Settlement Agreement  with Union  Mutual over a  long

            period of time.   On this record, it was  entirely reasonable

            for the  Tax Court to reject  Mr. Erickson's characterization

            of the transaction. 

                      Because  the  Tax  Court's  determination  that the

            $50,796   received   by   appellants    represented   renewal

            commissions was not clearly  erroneous, and appellants do not

            challenge the  taxability  of renewal  commissions  as  self-

            employment income, we affirm.





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                      Affirmed.
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