311 U.S. 267 (1940), 564, Helvering v. Oregon Mutual Life Insurance Co.

Docket Nº:No. 564
Citation:311 U.S. 267, 61 S.Ct. 207, 85 L.Ed. 180
Party Name:Helvering v. Oregon Mutual Life Insurance Co.
Case Date:December 09, 1940
Court:United States Supreme Court
 
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Page 267

311 U.S. 267 (1940)

61 S.Ct. 207, 85 L.Ed. 180

Helvering

v.

Oregon Mutual Life Insurance Co.

No. 564

United States Supreme Court

Dec. 9, 1940

Argued November 19, 1940

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

1. Section 203(a)(2) of the Revenue Acts of 1932 and 134, which permit a life insurance company -- defined by the Acts as

an insurance company engaged in the business of issuing life insurance and annuity contracts (including contracts of combined life, health, and accident insurance)

-- in computing income tax, to deduct from gross income an amount equal to a prescribed percentage of its "reserve funds required by law," authorizes such deduction in respect of reserves (required by law) based upon disability provisions of policies of combined life and disability insurance. P. 270.

2. The deduction may be taken in respect of such reserves whether the policyholders have then incurred disability or not. P. 271.

112 F.2d 468 affirmed.

Certiorari, post, p. 640, to review the affirmance of a decision of the Board of Tax Appeals which reversed a determination of a deficiency in income tax.

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

In computing its net taxable income for 1933 and 1934, respondent took a deduction of 3 3/4% of the reserves it had set aside with respect to its combined policies of life, health, and accident insurance. Section 203(a)(2)

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of the 1932 and 1934 Revenue Acts permits a life insurance company to deduct from its gross income "[a]n amount equal to (3 3/4%) of [61 S.Ct. 208] the mean of the reserve funds required by law. . . ."1 That respondent was a life insurance company as defined by the Revenue Acts, and that it was required by law to maintain reserves to protect both death and disability benefits, were conceded. The Commissioner allowed a deduction for death reserves, but disallowed as to disability reserves on the hypothesis that the words "reserve funds required by law" should be construed to apply only to reserves for death losses -- thereby excluding disability reserves. The Board of Tax Appeals held the deductions allowable in both respects, and reversed the Commissioner.2 The Court of Appeals for the Ninth Circuit affirmed;3 certiorari was granted because the Court of Claims had reached an opposite result on the same question.4 311 U.S. 640.

Legislative history discloses that a deduction similar to that allowed by section 203(a)(2) first appeared in the Revenue Act of 1921,5 and has reappeared in every revenue measure since, including that of 1939.6 Prior to 1921, insurance companies had not been allowed such a deduction, but had been subject to the same tax plan as corporations generally; the 1921 Act, however, wholly exempted insurance companies from the general scheme

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of corporate taxation and set up special systems applicable to them alone.7 The new plan, as it related to life insurance companies, had as a major objective the elimination of premium receipts from the field of taxable income. It had long been pointed out to Congress that these receipts, except as to a very minor proportion of each premium, were not true income, but were analogous to permanent capital investment.8 In all the Revenue Acts from 1921 through 1939, the gross income of life insurance companies no longer included premium receipts, but was limited to income "from interest, dividends, and rents."9 And, pursuant to the conceived analogy of reserves to capital investment, net income was to be determined by permitting, among other deductions from gross income, that same deduction here in dispute -- a percentage of the...

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