Most insurance agents serve one or more insurance companies under an employment contract as an "independent contractor". In that capacity, they are essentially self-employed persons creating, operating, and financing their own business at their own expense.

Usually, over a long period of years of personal services provided in conjunction with the insurance products being sold, personal relationships are developed between the agent and his or her customers, which in turn result in repeat sales and sales of other insurance lines products to those customers.

In traditionally well-accepted business language the aforementioned would characterize or describe the development of "business goodwill" and "business going-concern value".

When an independent contractor terminates or retires from his business most insurance company unilaterally drafted contracts call for the return of all the documents involved in the business developed with the sale of their insurance products, and incorporate some type of restrictive language, legally enforceable as a "covenant-not-to compete" or "covenant-not-to-solicit" the customers of the agent in the business he or she developed over his or her career.

In exchange for the cessation/termination of the agent's business and his or her agreement not to compete or solicit with the customers of that business the insurance companies agree to pay a series of post-termination payments.

Clearly, the insurance company is acquiring a "going concern business" and the "business goodwill" associated with it. Most of the insurance company unilaterally prepared employment contracts purposefully DO NOT identify within the contract that this "acquisition" is actually "a purchase and sale" of the "intangible assets" of "goodwill" and "going concern value". Insurance company management persons have 'testified' that there was no "goodwill" established in the agent's business, hence there was none for them to "acquire" or "purchase". Further, the insurance company unilaterally drafted employment contracts avoid defining or characterized these post retirement payments or the reason for which they are paid.

Obviously, independent contractor insurance agents disagree, as do most persons in the business and accounting world. There is no business that could be operated for 20, 25, 30, or 40 years and NOT CREATE SOME "GOODWILL" AND GOING CONCERN VALUE.

The motivation for the insurance companies to not recognize THE CREATION OF GOODWILL in these agencies, or to define the nature of the post retirement payments, or why they are paid, is based in economics.

When a retired insurance agent files his or her taxes on the receipt of these payments, he or she does so using IRS Form 8594, declaring these payments as payments received in respect of the disposition of the capital asset "goodwill". This IRS Form 8594, requires the reciprocal completion of the same from by the insurance company.

For reasons that have gone unexplained to date the IRS has not pursued the reciprocal completion of Form 8594 by the insurance companies.

Hence the insurance companies are being allowed to take a dollar for dollar tax deduction for these post retirement payments to agents. It is our position that were these payments defined as to basis and purpose in the employment contracts of these independent contractor insurance agents, the insurance companies, as the defacto purchasers of the insurance agency's "goodwill" and "going concern value", should only be deducting 7 and a half (7-1/2) cents on the dollar of these payments, thereby amortizing the acquisition of this capital asset over a 15 year period, in line with existing regulations applicable thereto.

Clearly, there is significant motivation for insurance companies to deny the existence of "goodwill".

From a revenue point of view, instead of the IRS attempting to collect the difference between the ordinary income tax rate and the capital gains tax rate on these post retirement payments from literally tens of thousands of retired agent entrepreneurs, which on average would be about 8 cents on the dollar, they could be collecting the difference between 7-1/2 cents on the dollar of these payments and 100 cents on the dollar (currently being deducted by the insurance companies), and collect these monies from a considerably lesser number of taxpayers, the insurance companies.