Warren Baker (plaintiff) operated the Warren L. Baker Insurance Agency (agency), which sold policies for State Farm Insurance Companies (State Farm). Baker’s contract with State Farm indicated that he was an independent contractor and was required to work with State Farm exclusively. The contract also stated that the agency’s business materials that were provided by State Farm, as well as the agency’s customer lists and policyholder materials, were State Farm’s exclusive property. Baker developed the agency’s customer base and policyholder materials, selected the office location, and hired and trained the employees. There was no employment contract between Baker and the agency’s employees. When Baker closed the agency, he passed on his customer base, office phone number, and sales techniques to a successor State Farm agent. Baker was entitled to a termination payment from State Farm, provided that he delivered all of the agency materials to State Farm and honored a covenant not to compete with State Farm for one year. On Baker’s federal tax returns, he reported the termination payment from State Farm as capital gain. The federal tax commissioner (commissioner) (defendant) issued a deficiency notice against Baker, determining that the termination payment constituted ordinary income. Baker petitioned the United States Tax Court for a redetermination.