Ohio Farmers Indemnity Co. v. Commissioner of Int. Rev., 7995.

• Decision Date: 15 January 1940
• Docket Number: No. 7995.,7995.
• Citation: 108 F.2d 665
• Parties: OHIO FARMERS INDEMNITY CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

108 F.2d 665 (1940)

OHIO FARMERS INDEMNITY CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 7995.

Circuit Court of Appeals, Sixth Circuit.

January 15, 1940.

Charles E. Curtis, of LeRoy, Ohio, for petitioner.

Edward H. Horton, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key and Edward H. Horton, Sp. Assts. to Atty. Gen. on the brief), for respondent.

Before HICKS, HAMILTON, and ARANT, Circuit Judges.

HAMILTON, Circuit Judge.

This appeal involves a deficiency in income taxes of $7,531.55 for the calendar year 1932 found by the Board of Tax Appeals to be due from the petitioner, Ohio Farmers Indemnity Company. The statute involved is the Revenue Act of 1932, Sections 13(a), 141(e), 201(a), 204(a), 208(a), (c) (3), Ch. 209, 47 Stat. 169, 26 U.S.C.A. §§ 13(a), 141 note, 201(a), 204(a), 207(a), (c) (3).

The petitioner was organized in 1929 under the general corporation laws of the State of Ohio and authorized to conduct a general liability insurance business, the major portion of which was automobile insurance. It was authorized to issue 2,000 shares of common capital stock, all of which were subscribed at the time of organization by the Ohio Farmers Mutual Fire Insurance Company. One Thousand Nine Hundred Ninety-one shares were issued to it and at its direction the remaining nine were issued, one each to the nine directors of the Ohio Farmers Mutual Fire Insurance Company, who were also elected as directors of petitioner and reelected from time to time since its organization. The Ohio Farmers Mutual Fire Insurance Company is also an Ohio corporation, organized in 1848, its charter having been granted by a special act of the Legislature and it was, and is, authorized to conduct the business of fire insurance and its allied lines, excluding liability insurance. It has no capital stock and no shareholders and its directors are elected at an annual meeting, each policyholder being entitled to vote. Petitioner and the Ohio Farmers Mutual Fire Insurance Company conduct their businesses jointly, having the same officers, directors, employees, and agents and petitioner's business is generally conducted as though it were a department of the Ohio Farmers Mutual Fire Insurance Company. The companies issue joint policies on motor vehicles, the petitioner underwriting liability insurance and the Ohio Farmers Mutual Fire Insurance Company insuring against loss or damage to the vehicle. The agents of each account to the Ohio Farmers Mutual Fire Insurance Company for business written for both and also pay to it balances due both and the portion of the funds belonging to petitioner is paid it monthly by the Ohio Farmers Mutual Fire Insurance Company. Cash premiums on all policies issued by Ohio Farmers Mutual Fire Insurance Company are ascertained and paid in advance and there is no liability of policyholders for assessments, nor provision in its policies for dividends to be paid them. It writes policies in the same form and manner as stock companies and uses the policy form uniformly adopted by such companies, except in states where a statutory form of policy is required and it keeps its books in accordance with established practice and rules of stock fire insurance companies, that is, on an accrual basis with reserves for unearned premiums and unpaid losses and it is a member of the National Board of Fire Underwriters which is limited to stock insurance companies.

For the year 1932, the Ohio Farmers Mutual Fire Insurance Company made a consolidated income tax return including petitioner as an affiliate and paid its tax under section 204 of the Revenue Act of that year. For many years prior thereto it had made its returns under the section of law provided for insurance companies other than life or mutual.

The Commissioner asserted a deficiency against petitioner for the tax year 1932 and held that the Ohio Farmers Mutual Fire Insurance Company was a mutual company and as such was taxable as an ordinary corporation and held that petitioner and it were prohibited from filing a consolidated return under the provisions of section 141 (e) of the Revenue Act of 1932. The Board of Tax Appeals sustained the Commissioner and hence this appeal.

The sole question for decision is whether the Ohio Farmers Mutual Fire Insurance Company, parent of petitioner, was a "mutual insurance company other than life."

Section 208 of the Revenue Act of 1932, 47 Stat. ch. 209, p. 227, provides that mutual insurance companies, other than life insurance, shall be taxable in the same manner as other corporations, with certain exceptions not material here. Such corporations are taxable under section 13 of the Act, 47 Stat. ch. 209, p. 177. Section 201 (a) provides for taxation of life insurance companies and section 204(a) for taxation of insurance companies other than life or mutual. Section 141(c) provides that an insurance company subject to be taxed under 201(a) or 204(a) shall not be included in the same consolidated return with a corporation subject to the tax imposed by section 13. The Commissioner found, and was sustained by the Board, that the Ohio Farmers Mutual Fire Insurance Company was taxable under section 208(a) of the Revenue Act of 1932 as a mutual company and that petitioner was taxable under 204 (a) as neither a life nor...