
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          August 2, 1993        [NOT FOR PUBLICATION]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                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,                                        _____________                           Campbell, Senior Circuit Judge,                                     ____________________                               and Cyr, Circuit Judge.                                        _____________                                 ____________________            Charles  J. Reilly with  whom Reilly  Law Associates  was on brief            __________________            ______________________        for petitioners.            Alice  L. Ronk,  Appellate Section,  Tax Division,  Department  of            ______________        Justice, with whom James A. Bruton, Acting Assistant Attorney General,                           _______________        Gary R. Allen,  Chief, Appellate Section, Tax  Division, Department of        _____________        Justice,  and  Bruce  R.  Ellisen, Appellate  Section,  Tax  Division,                       __________________        Department of Justice, were on brief for respondent.                                 ____________________                                 ____________________                      CAMPBELL, Per Curiam.  The Internal Revenue Service                                __________            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,                                                ________    ____________            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).                                         -2-                      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                                                                   ___                                         -3-            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)                          ______     _________            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                                         -4-            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.                                         -5-                      Affirmed.                      _________                                         -6-
