Commissioner v. Olmsted Incorporated Life Agency

304 F.2d 16 (8th Cir. 1962)

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Nature of the Case

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Facts

Olmsted (D) is an Iowa corporation and the exclusive general agent for Peoples Life Insurance Company. In 1956, Peoples wanted to terminate its exclusive relationship with D in order to divide the state into smaller territories. The president of D was in failing health, and he entered into a new agreement with the old agreement being canceled on December 31, 1955. Under the new agreement, D assigned to Peoples all of its rights to renewal commissions earned and payable after January 1, 1956. D and its three stockholders agreed not to sell life insurance for any other companies other than Peoples. D also agreed to turn over all documents and records of its business for the payment of an annuity of $500 per month for 180 months. Peoples also agreed to pay the agents employed by D any renewal commissions as might be due under their contracts with D. In 1956, D reported $5,500 as the total payments received under the new contract. The Commissioner determined that the fair market value was $69,924.47 and D owed $27,009.34. The Tax Court disagreed; the assignment of a right to future renewal commissions did not constitute a sale.