H & M, Inc. v. Comr., T.C. Memo. 2012-290

(petitioner started career selling insurance for local bank in Harvey, ND, but bought out the bank’s C corporation insurance operation over a period of time; bank ultimately buys-out petitioner and enters into six-year employment agreement with petitioner; IRS claims that transaction is disguised capital gain taxable at corporate rates and generates taxable dividends to petitioner; bank’s insurance agency dropped its name in favor insurance agency in petitioner’s name because of greater name recognition of petitioner; petitioner served as manager for six-year term of employment agreement; bank reported petitioner’s compensation as FICA wages; petitioner rewrote existing policies, accepted new applications, supervised and trained employees, attended bank training sessions, negotiated commissions and did bookkeeping for agency; petitioner’s workload increased substantially; at end of term, bank asked petitioner to continue to manage on year-to-year basis which petitioner agreed to do; petitioner trained replacement and retired; court rejected IRS position noting that there is no salable goodwill where the business of a corporation depends on the personal relationships of a key individual (Martin Ice Cream Co. v. Comr., 110 T.C. 189 (1998)); based on facts of case, court noted that insurance business was personal and petitioner had unique ability to keep large insurance companies interested in a small insurance market; petitioner did not have agreement with his agency at time of its sale to bar him from taking his clients and skills elsewhere; IRS did not denote what other intangible assets were purchased in the name of petitioner’s agency; minor unsubstantiated deductions with respect to not from petitioner’s wholly-owned corporation).