                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

CHARLES E. TRANTINA; LINDA M.         
TRANTINA,                                   No. 05-16102
             Plaintiffs-Appellants,
               v.                            D.C. No.
                                          CV-03-02579-SRB
UNITED STATES OF AMERICA,                    OPINION
              Defendant-Appellee.
                                      
       Appeal from the United States District Court
                for the District of Arizona
        Susan R. Bolton, District Judge, Presiding

                   Argued and Submitted
         April 19, 2007—San Francisco, California

                   Filed January 9, 2008

       Before: Stephen Reinhardt, Jay S. Bybee, and
            Milan D. Smith, Jr., Circuit Judges.

                 Opinion by Judge Bybee




                            289
292               TRANTINA v. UNITED STATES
                         COUNSEL

Robert P. Solliday, Thomas M. Quigley, Christopher L. Rad-
datz, David M. Kozak, Mohr Hackett Pederson Blakely &
Randolph, P.C., Phoenix, Arizona, for the appellants.

Eileen J. O’Connor, Kenneth L. Greene, Francesca U.
Tamami, Bridget M. Rowan, Tax Division, Department of
Justice, Washington, D.C., for the appellee.


                         OPINION

BYBEE, Circuit Judge:

   This case requires us to determine whether a contract to
provide insurance services can be treated as a capital asset
under 26 U.S.C. § 1221(a). If the contract is a capital asset,
then payments under the contract may be taxed as capital
gains, which are taxed at a lower rate than ordinary income.
We join the Seventh Circuit and conclude that the district
court correctly found that these payments under the contract
were ordinary income. Baker v. Comm’r, 338 F.3d 789, 793
(7th Cir. 2003).

       I.   FACTS AND PROCEDURAL HISTORY

   Charles E. Trantina served as an insurance agent for State
Farm Insurance Companies (“State Farm”) in the Phoenix
area from 1958 until his retirement in 1996. He operated his
insurance agency as a sole proprietorship until 1978. In 1978,
he incorporated the agency as Trantina Insurance Agency,
Inc. (“the Corporation”), an Arizona corporation of which he
was the sole shareholder. Upon incorporation in 1978, State
Farm and the Corporation executed a Corporation Agent
Agreement (“Corporate Agreement”), which lies at the center
of the current dispute.
                   TRANTINA v. UNITED STATES                  293
   The Corporate Agreement governed all aspects of the Cor-
poration’s relationship with State Farm. The Corporate Agree-
ment imposed on the Corporation, among other duties, the
obligation to solicit insurance applications, collect premiums
and other charges, service insurance policies, help with insur-
ance claim processing, and deposit monies collected on behalf
of State Farm into a trust account. The Corporate Agreement
required that the Corporation’s principal business be the ful-
fillment of the agreement and that the Corporation and its
sales representatives sell insurance exclusively for State Farm.
State Farm, in turn, took upon itself the obligation to assist the
Corporation with a portion of advertising costs as well as to
provide the Corporation with insurance manuals, forms, and
records.

   Under the agreement, all of the manuals, forms, and records
provided to the Corporation by State Farm remained the prop-
erty of State Farm. The Corporate Agreement also provided
that all information relating to policyholder names, addresses,
and ages, as well as information about policy details, such as
expiration or renewal dates and the location of insured prop-
erty, were trade secrets of State Farm. The Corporate Agree-
ment provided that all forms or other materials on which such
information was recorded were the sole property of State
Farm.

   State Farm compensated the Corporation for its services by
paying commissions for generating or servicing policies, pro-
viding higher commissions for servicing policies that the Cor-
poration had generated. When Trantina began his career as a
State Farm insurance agent in 1958, he was assigned 20 poli-
cies to service. When he retired and liquidated the Corpora-
tion in 1996, the Corporation was servicing over 17,000
policies, a large portion of which Trantina himself had gener-
ated.

   In addition to the regular commission payments, the Corpo-
rate Agreement required State Farm to pay the Corporation
294                  TRANTINA v. UNITED STATES
termination payments when the agreement terminated, pay-
able monthly for five years. These payments were contingent
upon the satisfaction of two conditions. First, the Corporation
was required to return to State Farm, within ten days of the
termination, all of State Farm’s property, such as the forms,
manuals, and other documents containing information con-
cerning insurance policies and policyholders. Satisfaction of
this condition entitled the Corporation to the first two monthly
termination payments.

   The remaining monthly termination payments required sat-
isfaction of an additional condition: The Corporation, its pres-
ident, and its licensed sales representative—three positions all
held by Trantina—were required to comply with a non-
compete agreement that prevented Trantina, for a period of
twelve months, from selling insurance competitive with State
Farm’s products to any of the customers whose policies he
had serviced. Compliance with both the first and second con-
ditions entitled the Corporation to receive the remainder of
the monthly termination payments.

   In 1996, after serving as State Farm’s insurance agent for
thirty-eight years, Trantina retired. He accordingly notified
State Farm that the Corporate Agreement would terminate on
June 30, 1996. Following termination of the agreement, the
Corporation returned all of State Farm’s property within ten
days as required by the agreement, and Trantina complied
with the non-compete provision, thus entitling the Corpora-
tion to the termination payments. The Corporation received
the termination payments until its dissolution in March 1997;
Trantina, as the Corporation’s sole shareholder, received the
payments following dissolution.

  In 1999, Trantina and his wife, Linda Trantina,1 filed a joint
  1
   Linda Trantina is a party to this litigation because the tax return in
question is a joint tax return. References to “Trantina” in the text, how-
ever, refer solely to Charles Trantina.
                    TRANTINA v. UNITED STATES                   295
tax return classifying the termination payments that Trantina
received from State Farm as ordinary income. On April 10,
2003, they timely filed an amendment to their 1999 income
tax return, seeking to reclassify the termination payments as
a long term capital gain and thereby reduce their tax liability
for 1999. The Trantinas accordingly claimed a refund for the
1999 tax year in the amount of $15,982 plus interest. The IRS
denied their claim for a refund on June 30, 2003, and the
Trantinas timely filed suit for a refund in the federal district
court for the District of Arizona on December 24, 2003. Both
parties moved for summary judgment, and the district court
granted summary judgment for the United States on May 17,
2005.

   The Trantinas advanced two claims for the refund in the
district court. First, they claimed that the termination pay-
ments were long term capital gain because the payments, orig-
inally an asset of the Corporation, were made to Trantina after
he exchanged his shares in the Corporation for the assets of
the Corporation during the liquidation. Second, the Trantinas
claimed that the payments are long term capital gains result-
ing from the sale or exchange of a capital asset—the Corpo-
rate Agreement itself—held longer than one year. See
Trantina v. United States, 381 F. Supp. 2d 1100, 1103 (D.
Ariz. 2005).

   The district court found that because the Trantinas failed to
present their first claim to the I.R.S., the court was without
jurisdiction to hear that claim. See id. at 1103-05. The district
court also granted summary judgment for the United States on
the Trantinas’ second claim, reasoning that the Corporate
Agreement was not a capital asset and that, even if it was, no
exchange or sale of the Corporate Agreement had occurred.
See id. at 1105-06. On appeal, the Trantinas only challenge
this second issue.2
  2
  We review the district court’s grant of summary judgment de novo.
Laws v. Sony Music Entm’t, 448 F.3d 1134, 1137 (9th Cir. 2006). This
296                   TRANTINA v. UNITED STATES
      II.   CLASSIFICATION OF THE TERMINATION
                      PAYMENTS

   No one disputes that the termination payments made to
Trantina constitute gross income to the Trantinas and are,
therefore, taxable. See 26 U.S.C. § 61(a) (“Except as other-
wise provided in this subtitle, gross income means all income
from whatever source derived . . . .” ). However, as everyone
who has attempted to navigate the labyrinth of the federal tax
code knows, not all gross income is taxed at the same rate.
The Trantinas argue that the termination payments qualify as
long term capital gains, which are taxed at a lower rate than
ordinary income. See id. § 1(h). The United States asserts that
the termination payments are ordinary income.

   [1] A long term capital gain is defined as a “gain from the
sale or exchange of a capital asset held for more than 1 year,
if and to the extent such gain is taken into account in comput-
ing gross income.” 26 U.S.C. § 1222(3). The statute estab-
lishes three requirements that must be met to classify income
as a long term capital gain: The payments (1) must arise from
the sale or exchange, (2) of a capital asset held longer than
one year, (3) and be given in consideration of this sale or
exchange. See Baker, 338 F.3d at 793.

   The Trantinas argue that the termination payments satisfy
this definition because the Corporate Agreement itself consti-
tuted a capital asset, and it was exchanged with State Farm for
the termination payments. The United States, in turn, insists
that the termination payments do not meet the definition of
long term capital gain because Trantina and his corporation

court “must view the evidence in the light most favorable to the [non-
moving party] and determine whether there is any genuine issue of mate-
rial fact and whether the district court properly applied the relevant sub-
stantive law.” Id. In this case, there are no disputes about the material
facts; the only question is the legal question of whether the district court
correctly ruled that the termination payments should be taxed as ordinary
income and not as a long term capital gain.
                      TRANTINA v. UNITED STATES                        297
had no property rights under the Corporate Agreement beyond
the contractual obligation to perform services and be compen-
sated for those services. Further, the government contends,
even if the Corporate Agreement is deemed to be a capital
asset, it was not sold or exchanged but instead was brought to
an end on its own terms. We agree with the government and
hold that the Corporate Agreement was not a capital asset.

   [2] The code defines “capital asset” as any “property held
by the taxpayer (whether or not connected with his trade or
business)” excluding eight categories of property not relevant
in this case.3 26 U.S.C. § 1221(a). A literal reading of this
broad statutory language would cause every conceivable
property interest, even an employment contract, to fall within
the category of “capital asset,” the termination of which
would result in a capital gain or loss. See United States v.
Maginnis, 356 F.3d 1179, 1181 (9th Cir. 2004); Furrer v.
Comm’r, 566 F.2d 1115, 1117 (9th Cir. 1977) (per curiam)
(“If all contracts granting rights could be considered capital
assets, without inquiry into the nature of the rights granted,
almost all ordinary income from salaries, wages or commis-
sions could be transformed into capital gain.”). Because of
this problem, the Supreme Court has stated that “not every-
thing which can be called property in the ordinary sense and
which is outside the statutory exclusions qualifies as a capital
asset.” Comm’r v. Gillette Motor Transp., Inc., 364 U.S. 130,
134 (1960). Instead, the Court has held that the term “capital
asset” should be construed “narrowly . . . to afford capital-
gains treatment only in situations typically involving the real-
  3
    The eight categories of property statutorily excluded from capital gain
treatment are inventory, real property used in the taxpayer’s trade or busi-
ness and all property subject to depreciation under 26 U.S.C. § 167 if used
in the taxpayer’s trade or business, certain copyrights and other written or
musical property, accounts receivable, certain publications of the United
States government, commodities derivative financial instruments held by
commodities derivatives dealers, property acquired for hedging transac-
tions, and supplies regularly used in the ordinary course of the taxpayer’s
business. See 26 U.S.C. § 1221(a)(1)-(8).
298                TRANTINA v. UNITED STATES
ization of appreciation in value accrued over a substantial
period of time, and thus to ameliorate the hardship of taxation
of the entire gain in one year.” Id. Accordingly, whether a
particular property right qualifies as a capital asset depends on
the nature of the property right that the taxpayer asserts.

   [3] The parties spend considerable time in the briefs dis-
cussing cases involving the question of whether a contractual
right qualifies as a capital asset. These cases demonstrate that,
when the property right asserted concerns the contractual right
to perform a service and receive compensation for the service,
a payment made to terminate the contract cannot be consid-
ered a capital asset unless the contract confers something
more than the right to perform services or receive compensa-
tion for services performed. See, e.g., Furrer, 566 F.2d at
1117; Vaaler v. United States, 454 F.2d 1120, 1122 (8th Cir.
1972) (“[T]he courts have quite uniformly held that contracts
for the performance of personal services are not capital assets
and that the proceeds from their transfer or termination will
not be accorded capital gains treatment but will be considered
to be ordinary income.”); Md. Coal & Coke Co. v. McGinnes,
350 F.2d 293, 294 (3d Cir. 1965) (per curiam) (finding a con-
tract giving the taxpayer an exclusive sales agency not to be
a capital asset because it did not confer on the taxpayer “some
interest or estate in or encumbrance upon some property with
which the contract is concerned”); United States v. Dresser
Indus., Inc., 324 F.2d 56, 60-61 (5th Cir. 1963) (finding that
the exclusive right to practice a patent did constitute a capital
asset); Nelson Weaver Realty Co. v. Comm’r, 307 F.2d 897,
899-901 (5th Cir. 1962) (finding sale of mortgage servicing
contract along with files, ledgers, and records to be a capital
asset); Dorman v. United States, 296 F.2d 27, 29 (9th Cir.
1961) (finding that an option to become a full partner in a
business venture constituted a capital asset); Brown v.
Comm’r, 28 T.C.M. (CCH) 1330, 1332 (T.C. 1969) (“A pay-
ment in discharge of [the right to receive commissions on pol-
icies], unlinked to the policies themselves by any proprietary
interest, is simply a substitute for ordinary income.”). The
                   TRANTINA v. UNITED STATES                 299
question in the present case is thus whether the Corporate
Agreement conferred on Trantina some right or interest
beyond the right to perform the services required by the
agreement or to receive compensation for the services per-
formed under the agreement.

   We have addressed this issue, albeit in a slightly different
context, previously. In Furrer v. Commissioner, the taxpayer,
an insurance agent, successfully sued the insurance company
for which he worked for breach of contract. 566 F.2d at 1116.
The taxpayer argued that the resulting damages should be
treated as capital gain and not as ordinary income because his
contract rights under the agency agreement “were in them-
selves capital assets.” Id. We rejected that argument, viewing
the essential right under an insurance agency contract to be
“the right to earn commission income.” Id. at 1117. We con-
cluded that “[t]his attempted transubstantiation of income into
capital must fail because the essential element—the capital
asset, tangible or intangible—is not present.” Id.

   More recently, the Seventh Circuit faced essentially the
same situation that confronts us. In Baker v. Commissioner,
Baker had received termination payments under an agency
agreement with State Farm that was nearly identical to the
Corporate Agreement in this case. 338 F.3d at 791-92. Baker
reported the termination payments that State Farm made
under the agreement as long term capital gain on his 1997
federal income tax return. Id. at 792. The Commissioner of
Internal Revenue (“Commissioner”) issued a notice of defi-
ciency to Baker, finding that the State Farm termination pay-
ments constituted ordinary income, not capital gain. Baker
contested the ruling in the Tax Court, which found for the
Commissioner. Id.

   [4] On appeal to the Seventh Circuit, Baker contended that
the termination payments were in consideration of the good-
will he established over his thirty-four year career. Id. at 793.
The Seventh Circuit rejected his arguments and agreed with
300                TRANTINA v. UNITED STATES
the Tax Court’s finding. Citing a provision in Baker’s agency
agreement with State Farm reserving to State Farm all prop-
erty rights over the policies and policyholder information, the
court wrote that “[b]ecause Warren Baker did not own any
property related to the policies, he could not sell anything.”
Id. As a result, the court found that Baker had not sold or
exchanged a capital asset; his termination payments were
therefore ordinary income. See id. at 794.

   [5] We adopt the reasoning of the Seventh Circuit. A pre-
condition to realizing a long-term capital gain is the owner-
ship of a capital asset. Yet under the express terms of
Trantina’s Corporate Agreement with State Farm, Trantina
simply had no property that could be sold or exchanged. The
Corporate Agreement contains a provision nearly identical to
the one that the Baker court found to be controlling. Tran-
tina’s Corporate Agreement states:

      Information regarding names, addresses, and ages of
      policyholders of the Companies; the description and
      location of insured property; and expiration or
      renewal dates of State Farm policies acquired or
      coming into the Agent’s possession during the effec-
      tive period of this Agreement, or any prior agree-
      ment, except information and records of
      policyholders insured by the Companies pursuant to
      any governmental or insurance industry plan or facil-
      ity, are trade secrets wholly owned by the Compa-
      nies. All forms and other materials, whether
      furnished by State Farm or purchased by the Agent,
      upon which this information is recorded shall be the
      sole and exclusive property of the Companies.

Given this blanket reservation of all property rights to State
Farm, it is unclear exactly what Trantina could have sold or
exchanged. Trantina could not sell back to State Farm some-
thing that it already owned.
                  TRANTINA v. UNITED STATES                  301
   Trantina attempts to distinguish Baker by noting that Baker
argued that Baker’s termination payments were made in con-
sideration of the sale of goodwill, while Trantina does not rest
on this argument. The Baker court did find that the termina-
tion payments could not be characterized as payments for
goodwill. See Baker, 338 F.3d at 793-94. But the holding in
Baker extended beyond goodwill; the Baker court found that
Baker did not own anything under the agreement and there-
fore could not sell anything, not even goodwill. See id. at 794
(“Baker owned nothing. Thus, he could sell no assets, includ-
ing goodwill.”).

   Trantina attempts to avoid the plain language of the Corpo-
rate Agreement by characterizing the Corporate Agreement
itself as a capital asset that was exchanged with State Farm
for the termination payments when Trantina retired. On this
theory, Trantina had “rights and interests in valuable assets,
the managed insurance policies,” which he asserts gave him
“some interest or estate in or encumbrance upon some prop-
erty with which the contract is concerned.” Md. Coal & Coke
Co., 350 F.2d at 293.

   Yet this characterization of the Corporate Agreement does
not fit with the express terms of the agreement. As noted
above, Trantina did not have any property rights in the poli-
cies under the express terms of the agreement. The policies,
including all identifying information which might have been
taken or conveyed to another insurance agency, belonged to
State Farm, not Trantina. Furthermore, the Corporate Agree-
ment expressly forbade Trantina from transferring or assign-
ing his interest in the Agreement itself. Section VI.B of the
Corporate Agreement states that

    neither the Agreement nor any interest thereunder
    can be sold, assigned, or pledged; and no right in any
    sum due or to become due to the Agent hereunder
    can be sold, assigned, or pledged without the prior
    written consent of the Companies.
302               TRANTINA v. UNITED STATES
To quote the district court, “[t]he suggestion that the Corpo-
rate Agreement is itself an asset, when it declares that all
assets pertaining to Plaintiffs’ insurance agency belong to
State Farm, is paradoxical.” Trantina, 381 F. Supp. 2d at
1106. It is likewise paradoxical to suggest that the Corporate
Agreement was an asset when the agreement itself stated that
it could not be sold or otherwise exchanged.

   [6] Instead, the better view of the termination payments is
that they were made pursuant to, not in exchange for, the Cor-
porate Agreement. As the government points out, the Corpo-
rate Agreement obligated Trantina to perform certain services,
such as soliciting and servicing insurance policies. Trantina
was compensated for these services through commission pay-
ments under the agreement, and he was permitted to continue
as State Farm’s agent as long as the agreement remained in
effect. Trantina only became entitled to the contractual termi-
nation payments after he complied with two additional condi-
tions in the agreement: He was required to return all of State
Farm’s property and he was required to comply with a twelve-
month non-compete agreement. The Seventh Circuit reached
a similar conclusion in Baker, finding that the termination
payments were made at least in part for the non-compete
agreement, which is taxed as ordinary income. See Baker, 338
F.3d at 794 (“We agree . . . that (a portion of) State Farm’s
payments were for a covenant not to compete. . . . [T]he con-
sideration a buyer pays a seller for a covenant not to compete
is taxable as ordinary income.” (citations omitted)).

   Trantina points to several aspects of the agreement as evi-
dence that he had enforceable rights beyond a contractual
right to perform services for State Farm and receive compen-
sation for those services. For example, Trantina argues that
State Farm could not have arbitrarily reassigned to another
agent the policies that the Trantina Insurance Agency had
generated because “State Farm recognized Trantina held valu-
able interests in the policies.” To support this contention,
Trantina curiously points to a provision that imposed an obli-
                   TRANTINA v. UNITED STATES                 303
gation upon himself, not upon State Farm. The agreement
provides that “[t]he Agent will respect the rights and interests
of other agents in policies credited to their accounts by
refraining from raiding or otherwise diverting policies from
their accounts to the Agent’s account.” In the agreement,
however, the term “Agent” refers to Trantina, not to State
Farm. The quoted provision thus imposed a duty on Trantina
not to raid other agents’ customers for his own account (and
presumably State Farm placed a similar duty on all of its other
agents). However, the provision says nothing about Trantina’s
ability to prevent State Farm from assigning the policies to
other agents.

   Trantina also highlights a provision in the Corporate Agree-
ment that permitted him to release to State Farm one-quarter
of the policies assigned to his account as evidence that he had
some property interest in the policies beyond the right to
receive compensation or perform services. Yet this provision
demonstrates only that Trantina could obtain an early, partial
release from his obligations to service the policies, not that he
possessed any property right in the policies themselves.

   Trantina points to no other provision of the agreement that
gave him the ability to prevent State Farm from reassigning
the policies. The Corporate Agreement actually expressly pro-
vides that “[t]he Agent or State Farm have the right to termi-
nate this Agreement by written notice.” So, contrary to
Trantina’s arguments, State Farm in fact did retain the power
to reassign, through termination of the agreement, all of Tran-
tina’s insurance policies.

  Trantina does point to the covenant of good faith and fair
dealing implied in every contract under Arizona law as evi-
dence that he possessed some interest greater than the right to
perform services for and receive commissions from State
Farm. But this argument proves too much: Assuming that
such a requirement exists under Arizona law, its existence
would not transform every contract for services into a capital
304                  TRANTINA v. UNITED STATES
asset. If we were to accept Trantina’s argument, the same
could be said of every services contract, and the result would
be contrary to our instructions under Gillette Motor Trans-
port. Simply because Trantina may have been able to enforce
his rights under the contract through a breach of contract
action if State Farm had transferred all of his policies to a dif-
ferent agent does not mean that the contract was a capital asset.4

   Trantina also argues that the Corporate Agreement is not
properly characterized as a personal services contract because
he was permitted to hire employees to help him fulfill the
terms of the agreement. This argument is inapposite. A con-
tract for personal services can permit the obligor to enlist the
assistance of others to fulfill the contractual duties. The duties
and obligations of Trantina under the Corporate Agreement
clearly indicate that the Corporation contracted with State
Farm to provide services to State Farm, namely, the sale and
servicing of insurance policies.

   Trantina asserts that the rights he possessed under the Cor-
porate Agreement are the type of property that Congress
intended to tax at the capital gains rate because he made a
“substantial economic investment in the Agreement” that “in-
creased over the years.” The basis for this investment, Tran-
tina argues, is the economic opportunity cost that he incurred
when he decided to pursue a career as an insurance agent
instead of something else. This argument sweeps far too
broadly. Every individual incurs an opportunity cost when he
or she decides to take one course of action instead of another.
To use opportunity cost as the basis for a capital investment
would render not only every employment contract, but also
every economic exchange, a capital asset.

  Finally, Trantina incorporates by reference the argument of
  4
   Further, we have held in the past that damages obtained from a suc-
cessful breach of agency contract action against an insurance company are
taxable as ordinary income. See Furrer, 566 F.2d at 1116.
                  TRANTINA v. UNITED STATES                 305
the amici that the substance of the Corporate Agreement was
essentially a franchise, which is recognized as a capital asset.
See 26 U.S.C. § 197 (including franchise within the definition
of intangible property). However, Trantina’s oblique refer-
ence in his reply brief to the brief of the amicus curiae is the
first time this argument is mentioned. It was not raised in the
district court. It has therefore been forfeited. See Int’l Union
of Bricklayers & Allied Craftsmen Local Union No. 20, AFL-
CIO v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir.
1985).

                    III.   CONCLUSION

   [7] Because we conclude that Trantina did not have any
property rights that he could sell under the express terms of
the Corporate Agreement, the termination payments were
properly characterized as ordinary income. The grant of sum-
mary judgment to the United States was proper. The judgment
of the district court is

  AFFIRMED.
