Mims Hotel Corp. v. Commissioner of Internal Revenue, 6135.

Citation185 F.2d 55
Decision Date08 November 1950
Docket NumberNo. 6135.,6135.
PartiesMIMS HOTEL CORP. v. COMMISSIONER OF INTERNAL REVENUE.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Richard G. Herndon, Wheeling, W. Va., for petitioner.

Hilbert P. Zarky, Sp. Asst. to the Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen. and Ellis N. Slack, Sp. Asst. to the Atty. Gen. on brief), for respondent.

Before PARKER, Chief Judge, and SOPER, Circuit Judge, and TIMMERMAN, District Judge.

PARKER, Chief Judge.

This is an appeal from the Tax Court in a case involving the proceeds of a life insurance policy on an officer of a corporation. The policy had been taken out and assigned to secure a loan to the corporation made by the insurance company; and upon the death of the officer the face of the policy was credited on the loan. The corporation, which was the taxpayer, contended that the proceeds of the policy should be included in its equity invested or equity borrowed capital and that its excess profits tax for the year in question be reduced accordingly. The Tax Court held the policy to be an asset of the corporation and refused to include its proceeds in equity invested or equity borrowed capital. 13 T. C. 901. We think that this was clearly correct.

The facts are fully stated in the opinion of the Tax Court and need not be repeated here. They may be summarized briefly as follows: Taxpayer is a Virginia corporation organized in the year 1930 by two brothers, John W. and Ralph E. Mims, to build and operate the Mimslyn tourist hotel at Luray, Virginia. These brothers were the principal stockholders of the corporation and each held 500 shares of its capital stock of the par value of $100 per share, for which they paid $25,000 in cash and transferred property valued at $75,000. The remaining stock of the corporation consisted of 127 shares distributed among 20 persons. Pursuant to an understanding reached prior to the issuance of the stock, the corporation procured a loan from the Shenandoah Life Insurance Company of $150,000, later increased to $165,000, with which to erect a hotel, and secured same by a mortgage on its property and the assignment of two policies of life insurance in the sum of $50,000 each on the lives of John W. and Ralph E. Mims.

The policies of life insurance had been taken out upon the requirement of the life insurance company, which as a condition of making the loan had stipulated that they be taken out and assigned as security, the "proceeds of either policy, in the event of the death of the insured to be applied to the liquidation of the loan." The policies were payable to the executors or administrators of the insured, with right on the part of the insured to change the beneficiary, but were promptly assigned as security for the loan in accordance with the agreement under which the loan was being made. The premiums were paid by the taxpayer and this was shown upon its books, and the cash surrender value of the policies was carried on its books as an asset. John W. Mims died in 1939 and the $50,000 which then became due on the policy issued on his life was credited by the insurance company on the debt for which it had been assigned; and taxpayer reported the $50,000 in its tax return of that year as nontaxable income from a life insurance policy.

On these facts, we do not think that the finding of the Tax Court to the effect that the policy was the property of taxpayer can be disturbed; and, this being true, the questions which would arise if the policy were not the property of taxpayer need not be considered. Taxpayer relies upon Tate v. Commercial Building Ass'n et al., 97 Va. 74, 33 S.E. 382; but that case is not in point. There a member of a loan association in whose life the association had no insurable interest, took out a policy which he assigned as security for money loaned the association; and the holding of the court was that, although the agreement to take and assign the insurance was contrary to public policy and void,...

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3 cases
  • Super Food Services, Inc. v. United States
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • 10 Septiembre 1969
    ...contracts based on the experience of Johnson prior to 1959. Cf. Mims Hotel Corp., 13 T.C. 901 (1949), affirmed on other grounds, 185 F.2d 55 (4th Cir. 1950). Taxpayer was not here attempting to use this subsequent experience to change the rate of depreciation which would have been appropria......
  • Card v. Commissioner of Internal Revenue
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • 13 Octubre 1954
    ...are conclusive upon the Court of Appeals unless clearly erroneous. Collamer v. C. I. R., 4 Cir., 1950, 185 F.2d 146; Mims Hotel Corp. v. C. I. R., 4 Cir., 1950, 185 F.2d 55; A. & A. Tool & Supply Co. v. C. I. R., 10 Cir., 1950, 182 F.2d 300; Maverick-Clarke Litho Co. v. C. I. R., 5 Cir., 19......
  • Morgan v. EJ EVANS COMPANY
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • 5 Junio 1959
    ...matter of law for the sole benefit of the employer company. Reliance was also placed by the trial court on Mims Hotel Corp. v. Commissioner of Internal Revenue, 4 Cir., 185 F.2d 55. It is not even cited in appellee's brief. It is not in The vital distinction between the Wellhouse case and t......

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