                          T.C. Memo. 1996-241



                        UNITED STATES TAX COURT



                     BEN COX, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18559-93.                         Filed May 23, 1996.


     Ben Cox, pro se.

     Reginald R. Corlew and Stephen R. Takeuchi, for respondent.


                          MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:     This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1     Respondent

determined a deficiency in petitioner's Federal income tax for

1990 in the amount of $2,047.    The sole issue for consideration



1
     All section references are to the Internal Revenue Code in
effect for the year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 2

is whether petitioner failed to report commissions earned from

prior sales of life insurance policies in the amount of $7,266.

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated herein.   Petitioner resided in Jasper, Florida,

at the time he filed his petition.

     Petitioner has been employed as a mechanic for Occidental

Chemical Phosphate Co. for more than 22 years.   In 1988, he was

hired by Massachusetts Indemnity and Life Insurance Co. (MILICO)

as an independent contractor sales representative to sell life

insurance policies.   Petitioner worked for MILICO from 1988 until

the end of 1989.

     Karen Wilson (Ms. Wilson) is vice president of Primerica

Life Insurance Co., formerly known as MILICO prior to a corporate

name change effective July 1, 1992.   In this capacity, Ms. Wilson

executed an affidavit that was received into evidence wherein she

detailed the compensation procedure for MILICO's independent

contractor sales representatives:

                                3.

          Cash payments are made to sales representatives in two
     forms. First, upon receipt of an application for insurance,
     Primerica Life advances a portion of the commissions that
     are expected to become earned, assuming a policy is issued
     and remains in force. The money advanced on each
     application is a loan and, as such, is not reported as
     income for the sales representative unless and until the
     commission income actually becomes earned by virtue of the
     policyholder continuing to pay premiums.
                                 3

                                4.

          The second form of payment to sales representatives is
     net earned commissions. Earned commissions are calculated
     on a policy-by-policy basis as premiums are paid by
     policyholders. Earned commissions are applied in the
     following order: (1) to recover outstanding loans in the
     form of advance commissions; (2) to reimburse Primerica Life
     for advanced business expenses such as license fees, etc.;
     and (3) to cover outstanding loans that have been charged to
     the sales representative's account ("chargebacks"). Net
     earned commissions credited during any calendar year to a
     sales representative's account are reported to the IRS as
     income on Form 1099-MISC.

Ms. Wilson further stated that "the obligation to pay commissions

attributable to the sale of MILICO insurance products was the

responsibility of MapleLeaf Insurance Services" (MapleLeaf).

     Petitioner testified that upon selling an insurance policy,

he received an immediate advance equal to a percentage of the

premiums due on the policy and was entitled to keep this amount

if and only if the policy was held by the insured for a minimum

of 7 months.   According to Ms. Wilson's affidavit, the advances

were intended as loans, and there was an unconditional personal

obligation on the part of petitioner to repay the advances either

with the future commission, credited to his account after the

relevant 7 months elapsed, or out of his personal funds.   The

advances were not reported by MapleLeaf to the IRS as income on

Form 1099-MISC until the 7 months elapsed, and petitioner had an

unconditional right to the funds or their equivalent.
                                   4

       A financial analysis schedule for petitioner, generated by

MILICO on December 30, 1992, and received into evidence, reflects

the following information:


           Life Insurance1          Earnings2              Net
Year        Checks Issued         Rep. on 1099          Difference

1988         $12,232.64                $6,098.68        ($6,133.96)
1989          11,113.71                11,210.23             96.52
1990             128.44                 7,266.75          7,138.31
1991             333.06                   210.22           (122.84)
1992             360.84                   -0-              (360.84)

   Total      24,168.69                24,785.88            617.19
       1
        Represents advances made to petitioner during year.
       2
        Represents commissions credited to petitioner's account
after right to funds became unconditional.

       On his 1988 and 1989 Federal income tax returns, petitioner

reported as commission income only the amounts reported on the

Forms 1099 issued by MapleLeaf.        Petitioner did not report any

commission income received from MapleLeaf on his 1990 return.          In

the notice of deficiency, respondent determined that petitioner

failed to report income in 1990 of $7,266.75.        Respondent further

determined that petitioner was entitled to a deduction for self-

employment tax in the amount of $517.        Respondent concedes that

if we find petitioner failed to report income as determined, he

is entitled to deductions for chargeback expenses of $1,526 and

miscellaneous expenses of $115.

       Petitioner concedes that he received the amounts reflected

in the second column of the above schedule for the corresponding
                                  5

years, and that he paid tax only on the amounts reflected in the

third column.   Nevertheless, he contends that only $128.44 of the

amount reported on the Form 1099 for 1990 is taxable income in

1990 because he received the remainder thereof in prior years;

namely, 1988 and 1989.

     Section 61(a)(1) specifically provides that gross income

includes income from whatever source, including commissions from

the sale of life insurance.    Commissioner v. Glenshaw Glass Co.,

348 U.S. 426, 431 (1955).   In general, proceeds of a loan do not

constitute income because the benefit is offset by an obligation

to repay.   United States v. Rochelle, 384 F.2d 748, 751 (5th Cir.

1967); Milenbach v. Commissioner, 106 T.C. 184 (1996).

     Although petitioner's employment with MILICO terminated in

1989, he continued to earn commissions on policies sold by him

prior to his departure.   Instead of paying these commissions to

petitioner, MapleLeaf credited his outstanding advances account

in accordance with its agreement with MILICO.   When the advances

were made to petitioner, he was not taxable on them because they

were in effect loans.    See Beaver v. Commissioner, 55 T.C. 85, 91

(1970).   However, when the commissions earned by him in 1988 and

1989 were credited to his account, petitioner's obligation to

repay the loans was reduced by that amount, and the reduction of

that obligation did constitute the receipt of taxable income.
                                 6

Newmark v. Commissioner, 311 F.2d 913, 915 (2d Cir. 1962), affg.

T.C. Memo. 1961-285.

     Moreover, it is well settled that gross income includes

income from the discharge of indebtedness.   Sec. 61(a)(12);

Commissioner v. Jacobson, 336 U.S. 28 (1949); Helvering v.

American Chicle Co., 291 U.S. 426 (1934); United States v. Kirby

Lumber Co., 284 U.S. 1 (1931).   The evidence in this case makes

it clear that petitioner owed money to MILICO on account of the

advances he received in 1988 and 1989, and that a portion of such

debt was discharged in the taxable year at issue.      Therefore, the

amount of debt discharged in favor of petitioner constitutes

income to him for 1990 as determined by respondent.     Petitioner

was not taxed on the advances when received, but he is taxable on

the discharge of the obligation to repay them.

     Based on the foregoing, we hold that petitioner failed to

report commission income in the amount determined by respondent.

In order to account for chargeback expenses of $1,526, and

miscellaneous expenses of $115, as conceded by respondent,

                                          Decision will be entered

                                     under Rule 155.
