300 U.S. 216 (1937), 257, Helvering v. Midland Mutual Life Insurance Co.

Docket Nº:No. 257
Citation:300 U.S. 216, 57 S.Ct. 423, 81 L.Ed. 612
Party Name:Helvering v. Midland Mutual Life Insurance Co.
Case Date:February 15, 1937
Court:United States Supreme Court

Page 216

300 U.S. 216 (1937)

57 S.Ct. 423, 81 L.Ed. 612



Midland Mutual Life Insurance Co.

No. 257

United States Supreme Court

Feb. 15, 1937

Argued January 7, 1937




1. Where a life insurance company, at foreclosure sale, bid the principal of its mortgage loan plus accrued interest and took over the property in satisfaction of the whole debt without payment and repayment of any cash, held that the amount of the interest was taxable as income "received during the taxable year from

Page 217

interest," Revenue Act 1928, § 202(a), even though the property, when so acquired, was worth less than the amount of the principal. P. 222.

The bid was made without regard to the value of the property apparently for the purpose of avoiding loss of investment in case of redemption by the mortgagor. The property was carried on the company's books as an asset, valued at the principal of the loan plus certain expenses. The interest was not entered either as asset or as income.

2. The term "interest" in the Act, supra, is used generically. P. 223.

3. A receipt of interest is taxable as income, whether paid in cash or by credit. Id.

4. Bookkeeping entries, though in some circumstances of evidential value, are not determinative of tax liability. Id.

5. A mortgagee who, at foreclosure sale, acquires the property by bid of principal and interest acquires the same rights qua purchaser as the stranger who buys for cash, and in either case the debt, including the interest, is paid. Id.

6. Where the legal effect of a transaction fits the plain letter of a tax act, the transaction is included unless a definite intent to exclude it is clearly revealed in the Act or its history. P. 224.

7. Tax laws are construed with a view to their efficient administration. P. 225.

8. The tax in this case is not inconsistent with rights of mortgagees as defined in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555. P. 226.

83 F.2d 629 reversed.

Certiorari, 299 U.S. 527, to review a judgment reversing a decision of the Board of Tax Appeals sustaining an increased income tax assessment.

Page 220

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

Since 1921, the Revenue Acts have made this provision for taxing the income of life insurance companies.1 The gross income is limited to that "received during the taxable year from interest, dividends, and rents." Upon the net income, ascertained by making prescribed deductions, the tax under the act here applicable is 12 percent.2 The general provisions of the Revenue Acts concerning capital "gains and losses" and "bad debts" are not applicable to life insurance companies.3

In 1930, the Midland Mutual Life Insurance Company of Ohio caused to be foreclosed several mortgages on real estate given to secure loans which were in default. It was the only bidder; its bid was accepted; the property was conveyed to it, and in no case was there redemption. At each foreclosure sale, the company had bid an amount which included interest as well as the principal. The interest so bid, aggregating on the foreclosed mortgages $5,456.99, was not included in the company's income tax return. The Commissioner of Internal Revenue decided that this interest was taxable and accordingly determined a deficiency in the company's income tax for 1930. His determination was approved by the Board of Tax Appeals. The Circuit Court of Appeals reversed the decision of the Board, 83 F.2d 629. We granted certiorari because of conflict with Helvering v. Missouri State Life

Page 221

Ins. Co., 78 F.2d 778, and National Life Ins. Co. v. United States, 4 F.Supp. 1000.

The following additional facts stipulated were adopted by the Board of Tax Appeals as its findings: the company kept its books on a "calendar year" "cash receipts and disbursements" basis, entering only payments of interest actually made to it during the year. Upon its acquiring title to the foreclosed properties, the investments were transferred on its books from the mortgage loan account to the real estate account, and were carried thereon as assets at amounts which were equal to the principal of the loans secured by the mortgages plus any [57 S.Ct. 425] disbursements made for taxes, court costs, attorneys' fees, or insurance premiums. The amount of interest included in the bids on foreclosure was not carried on the books as part of the cost of the properties or as an asset. Nor was it entered on the books or likewise treated as income. All of the properties here involved were located in states where a period of redemption from foreclosure is allowed. The company issued to its representatives having charge of foreclosures in those states general instructions to bid on its behalf such sums as would enable the company to realize no loss on account of its investment in case of redemption. The...

To continue reading