USCA1 Opinion
August 2, 1993 [NOT FOR PUBLICATION]
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-2392
NORMAN D. ERICKSON and MARILYN J. ERICKSON,
Petitioners, Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent, Appellee.
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APPEAL FROM THE UNITED STATES TAX COURT
[Hon. Francis J. Cantrel, Judge]
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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,
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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,
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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. 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.
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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.
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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.
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The only issue for this court, then, is whether the
Tax Court erred in finding, id. at 967-68, that payments
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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.
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Commissioner, 962 F.2d 1077, 1080 (1st Cir. 1992). Ample
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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
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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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