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Contract Value

Posted by George 
George
Contract Value
November 08, 2007 01:53AM
Anybody with information on ufaa's seca tax kit and what it offers. No information on IRS site pertaining to treatment of contract value from tax standpoint???

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Jim
Re: Contract Value
January 08, 2008 07:27AM
George;
As a Farmers agent for 43 years, I am retiring, and I asked why Farmers didn't
give us any help or advice on how the IRS will treat our contract value payout.
The very simple answer is that we are not employees. They help their employees,
but we are all self employed with a contract to represent the company, much like
any independant agent. An independant agent owns his policyholders. We do not.
Farmers owns the policies. If you were a UFAA member, you might be able to order
their "kit". Sorry UFAA, I get my tax advice from my accountant. If you try to
consider your contract value as a capital gain, you will get screwed by the IRS.
Read section 1402 of the tax code, which deals specifically with insurance agents.
If you receive any EARNED income from any line of business Farmers writes, your
contract value payout will be suject to the self employment tax (social security),
until the total contract value is received. That's 15% I don't want to pay. You can still be an FFS rep, since you are not retiring from that. Your DM will be
the principal. Good luck. Farmers might have their heads in a dark place about some things, but this isn't one of them.

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Re: Contract Value
August 31, 2009 09:16PM
How exactly do you report your contract value - what form? I no longer have any income in insurance other than my contract value.

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J
Re: Contract Value
January 15, 2010 11:18PM
How do you determine your start date with Farmers-I think my career was February 2004. Is it the date you converted to a career agent or when you signed as a reserve? I am trying to determine when I reach my 6 years and I can sell the agency back to Farmers for 100% of my contract value.

Thanks

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Ben
Re: Contract Value
April 11, 2010 06:09PM
I am confused. Since you are considered an independent contracter you would receive a 1099 from Farmers. Are they not paying out your contract and is this not considered a capitol gain. You would need to find other loop holes like selling it to a family member and then having them pay you back smaller amounts annually. This does not avoid capital gains but it does lower the amount you have to give in a particular year to the IRS.

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Re: Contract Value
April 13, 2017 04:41PM
What form did you end up reporting your contract value on?

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Re: Contract Value
March 12, 2021 06:53PM
I retired from Farmers after 47 years of service. My contract value had been cut dramatically after Farmers discontinued the writing of classes of
of commercial. I watched the past couple of years as Farmers helped provide buyers for agents retiring. Early on they were getting contract value and additions for the sale of the agency's. At age 78 and with contract value production cuts coming I decided to retire. Suddenly their were no
available buyers. With out even asking my son who had worked over 10 years in the agency's, the book of business was assigned to a fair haired
agent who was nephew of a past president of Farmers and Zurich North America. My tax advisor whom was given the UFAA tax guide said after
his research it was not advisable to treat it as long term capital gains. I paid a substantial chunk in taxes last year and will this year. The manager's response to me was he didn't think my son was interested. My son went to teaching school part time. I am now preparing the information for
the tax preparer I have used for Meany years. Although I liked being a Farmers agent I can testify not all agents are created equal. I had eight managers over the years and most were unqualified. I am wondering now why so Meany new buyers paid for their agencies and a new agent with connections gets started for free. Jerry Steiniger, CPCU.

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Mike Sam
Re: Contract Value
September 21, 2022 03:54PM
Funny this topic at this place came up when I was looking for some information for a retiring (selling agent). I will give you folks my thoughts and experiences.

Everyone should be advised by a competent tax professional before selling or cashing in a Farmers agency. Competent is the hard part.

The IRS has determined contract value is earned income, many times. For many reasons they believe it is not the same as selling a business. Some if not all of their reasons are correct. It's guaranteed based on a formula, it's a fixed amount you have no chice but to take it as outlined in the contract, etc.

I can argue about this but it is what the courts have said so sorry. If you have the time and resources I believe there are good arguments. Your beef is with the IRS not Farmers.

I do believe when Farmers changed the rules so you could sell to another individual at a negotiated price it changed the IRS game. Weather anyone has spent the time and money to challenge this I don't know. It makes it much more likely a capital gain event than in the past.

I haven't taken the time to research and I'm not going to but for those of you who have money to gain or lose it would be advisable to research and perhaps get a competent tax advisor/attorney to peruse this. Takes time and money.

Though I hate to defend a large company (keep in mind it's only business, after 40 years of blood and sweat and emotion poured into your business, you are gone and no longer matter) the contract is the contract. I have not seen Farmers lie or cheat ever. Lots of misinformation lots of hurt feelings but no contractual breeches. They may exist, I have not seen it.

Folks need to be more informed and understand the contracts before entering into a relationship with anyone or any entity, we are just not inclined. I speak for myself.

Just thought I'd share my experiences on this matter. I have some history with this.

Hope it helps some. Stay positive and most of all be happy. I recommend grandchildren.

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