Robert E. Milligan v. Commissioner Internal Revenue Service

Robert E. Milligan (“Milligan”) appeals the tax court’s order and decision upholding the Commissioner of Internal Revenue’s determination of a deficiency in Milligan’s federal income tax for the taxable year 1987 in the amount of $3,076.00. We have jurisdiction under 26 U.S.C. § 7482 (a)(1). We reverse.

BACKGROUND

On April 12, 1949, Appellant Milligan began working as an exclusive insurance agent, on an independent contractor basis, for State Farm Insurance Company (“State Farm”). As a State Farm insurance agent, Milligan sold and serviced insurance policies for four sub-companies of State Farm — State Farm Mutual Automobile Insurance Company (“State Farm-Auto”), State Farm Life Insurance Company (“State Farm-Life”), State Farm Fire and Casualty Company (“State Farm-Fire”), and State Farm General Insurance Company (“State Farm-General”).

On March 1, 1977, Milligan and State Farm entered into the fourth of a succession of agency contracts entitled State Farm Agent’s Agreement (the “Agent’s Agreement”). (ER 52-77). According to the Agent’s Agreement, Milligan’s compensation consisted of commissions on all personally-produced policies, “service compensation” for his services on…