Western & Southern Life Ins. Co. v. Huwe

• Decision Date: 17 January 1941
• Docket Number: No. 8464.,8464.
• Citation: 116 F.2d 1008
• Court: U.S. Court of Appeals — Sixth Circuit
• Parties: WESTERN & SOUTHERN LIFE INS. CO. v. HUWE, Collector of Int. Rev.

116 F.2d 1008 (1941)

WESTERN & SOUTHERN LIFE INS. CO. v. HUWE, Collector of Int. Rev.

No. 8464.

Circuit 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.

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, acquired $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 8½/12 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 Public Savings Insurance Company held December 31, 1927, as the mean on which the deduction should be based. This revision resulted in reducing appellant's mean reserve to $62,052,621.54 and its deduction from gross income to $2,482,104.86, and increased its tax liability $3,873.82, together with accrued interest of $741.67.

Appellant admittedly overpaid its income taxes for the calendar year 1928 in the sum of $11,739.35 and duly filed claim for refund for that sum. The Commissioner of Internal Revenue credited $4,615.49 of this sum on the additional taxes found by him to be due by the appellant for the calendar year 1927. This sum appellant seeks to recover.

Section 245(a) (2) of the Revenue Act of 1926, 44 Stat. 9, 47, 26 U.S.C.A. Int.Rev. Acts, page 193, provides that in the case of a life insurance company the term "net income" means the gross income less an amount equal to the excess, if any, of 4 per centum of the mean of the reserve funds required by law and held...