116 F.2d 1008 (6th Cir. 1941), 8464, Western & Southern Life Ins. Co. v. Huwe

Docket Nº:8464.
Citation:116 F.2d 1008
Party Name:WESTERN & SOUTHERN LIFE INS. CO. v. HUWE, Collector of Int. Rev.
Case Date:January 17, 1941
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 1008

116 F.2d 1008 (6th Cir. 1941)

WESTERN & SOUTHERN LIFE INS. CO.

v.

HUWE, Collector of Int. Rev.

No. 8464.

United States Court of Appeals, Sixth Circuit.

January 17, 1941

Joseph O'Meara, Jr., of Cincinnati, Ohio (Clyde P. Johnson and Joseph O'Meara, Jr., both of Cincinnati, Ohio on the brief), for appellant.

Edward H. Horton, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key and Edward H. Horton, Sp. Assts. to Atty. Gen., Calvin Crawford, of Dayton, Ohio, and Frederic W. Johnson, of Cincinnati, Ohio, on the brief), for appellee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

Page 1009

HAMILTON, Circuit Judge.

Appellant, the Western and Southern Life Insurance Company, appeals from a judgment dismissing its petition in an action against the appellee, Louis J. Huwe, Collector of Internal Revenue for the First District of Ohio. The facts out of which the controversy arises are substantially as follows.

Appellant is a legal reserve stock life insurance company organized under the laws of the State of Ohio and, during the tax years of 1927 and 1928, was engaged in conducting a life insurance business. On April 18, 1927, appellant reinsured all of the outstanding and unmatured policy obligations of the Public Savings Insurance Company of America and on that date, as a part of the reinsurance agreement, required $4,791,573 of the reserve funds of the reinsured company. In determining the mean of its reserve funds held at the beginning and end of the calendar year 1927, the tax year, appellant added to the half sum of the reserves held by it at the beginning and end of the year on outstanding policies written by it, the half sum of the reserve funds acquired by it from the reinsured company, after reducing the latter figure to an annual basis by multiplying by 8 1/2/12 or 17/24, on the theory that this represented the actual mathematical mean. This method showed a mean reserve of $62,827,334.78.

In making its income tax return for 1927 under the provisions of the Revenue Act of 1926, chap. 27, 44 Stat. 9, 47, appellant deducted from gross income four per cent of the above sum, or $2,513,095.39. On audit and review, this computation was rejected by the Commissioner of Internal Revenue, who used the half sum of appellant's own reserve funds held at the beginning and end of the year 1927, plus the reserve funds of the...

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