Southwestern Life Ins. Co. v. U.S.
| Decision Date | 05 October 1977 |
| Docket Number | No. 75-2675,75-2675 |
| Citation | 560 F.2d 627 |
| Parties | 77-2 USTC P 9674 SOUTHWESTERN LIFE INSURANCE COMPANY, Plaintiff-Appellee-Cross-Appellant, v. UNITED STATES of America, Defendant-Appellant-Cross-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Frank D. McCown, U. S. Atty., Fort Worth, Tex., Scott P. Crampton, Asst. Atty. Gen., Gary R. Allen, Atty., Gilbert E. Andrews, Acting Chief, Appellate Sec., Bennet N. Hollander, Richard Farber, Tax Div., U. S. Dept. of Justice, Washington, D. C., Martha Joe Stroud, Asst. U. S. Atty., Dallas, Tex., for defendant-appellant-cross-appellee.
O. Jan Tyler, Robert K. Sands, Dallas, Tex., for plaintiff-appellee-cross-appellant.
Appeals from the United States District Court for the Northern District of Texas.
Before TUTTLE, GOLDBERG and CLARK, Circuit Judges.
This appeal presents for consideration the correctness of the trial court's judgment in a suit for refund filed by the insurance company by which judgment the trial court resolved several of the contested issues in favor of the taxpayer and the remaining issues in favor of the Commissioner. Since the parties are not content to leave the split solution where it stands, it is necessary for us to give separate consideration to each of the many points at issue in the trial court. We shall first discuss the five issues which the trial court resolved in favor of the taxpayer, and which the Government has raised on its direct appeal to this Court. We then turn to the issues resolved in favor of the Commissioner and brought before us here by cross-appeal by the insurance company. Fortunately, both for the Court and for those affected by the opinion of this Court, counsel for the appellees followed the pattern of the Government's brief in discussing the several issues and, with an effort to get quickly to the merits of the controversy, counsel for the appellees followed almost verbatim the wording of the Government's brief in positing the issues which, on the Government's direct appeal, we state as follows:
I. ISSUES ON DIRECT APPEAL
1. Whether the district court erred in holding that it had jurisdiction to consider the merits of taxpayer's argument concerning its claimed deduction under Section 809(d)(5) of the Internal Revenue Code of 1954 for the increase in its reserves for nonparticipating contracts.
2. Assuming arguendo that the court was correct in determining that it had jurisdiction, whether Section 809(d)(5) which provides an additional 10-percent deduction for increases in life insurance reserves attributable to nonparticipating contracts, is subject to the Section 810 "spread rule" to the extent that the increase is due to reserve strengthening.
3. Whether the district court erred in holding that mortgage escrow funds taxes and other amounts withheld from taxpayer's employees and various other amounts received or retained by taxpayer during the years in issue did not constitute "assets" of the taxpayer within the meaning of Section 805(b) of the Code.
4. Whether the district court also erred in holding that due and unpaid accident and health premiums were not includible in taxpayer's assets.
5. Whether the district court erred in holding that amounts paid by taxpayer to pension plans as "excess interest" on certain life insurance and annuity contracts constituted "amounts in the nature of interest" within the meaning of Section 805(e)(2) of the Code.
II. NATURE OF THE CASE
The issues in this case arise under the Life Insurance Company Income Tax Act of 1959, 26 U.S.C. § 801 through 820. Congress has long recognized the difficulties in accurately establishing life insurance company annual income and, as reflected in the legislative history, S.Rep.No. 291, 86th Cong., 1st Sess., p. 5 (1959-2 Cum.Bull. 770-775) an apparent tax advantage is allowed to such companies on account of the nature of their long-term contracts which make it possible that what might appear to be income in the current year could conceivably be required later to fulfill insurance contracts. It is not deemed necessary for our consideration of the several issues involved to outline the precise method by which taxable income of life insurance companies is measured. It can be assumed, of course, from the fact that the issues are raised that their resolution will affect the ultimate income tax liability of
the taxpayer. III. ISSUES NUMBERS 1 AND 2 RESERVE
STRENGTHENING UNDER SECTION 809(d)(5)
These issues are treated together, because it is the Government's position that the Commissioner's disallowance of the ten percent deduction for increases in life insurance reserves attributable to nonparticipating contracts under Section 809(d)(5) was not challenged by the taxpayer by a claim for refund before the filing of the suit now before the Court. If we find this contention to be correct, we do not reach the merits of the question.
The "ground" for the taxpayer's contention that it is entitled to a refund as to this item arises from the unique provisions of the Code dealing with the treatment of certain reserves which is not brought about by normal additions to reserves. The Code authorizes the deduction in the tax year by an insurance company of the total amount normally added to reserves. In a case of "reserve strengthening" that is, when the company elects to increase its reserves beyond those required by § 808 of the Act, the Code requires that the deduction of the amount, here $820,068, be made over a period of 10 years, beginning the following year. This is called the "spread" rule. The statute further authorizes the deduction of an additional 10% of the amount of any reserve increase attributable to nonparticipating contracts. The taxpayer claims, and the trial court held, that this 10% could all be deducted for the tax year because it was not covered by the "spread" rule. The government contends, to the contrary, that the statute requires the same treatment of this additional 10% as is given to the principal amount itself: None is deducted in the tax year but deductions must be spread over the succeeding 10 years. Resolution of this issue depends upon the construction of § 809(d)(2), 809(d)(5) and 810(d) of the Code.
Section 7422 of the Internal Revenue Act of 1957 provides as follows:
"No Suit prior to filing claim for refund No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof."
26 U.S.C. § 7422(a)
The Supreme Court has long since held that a failure to raise factual and legal grounds in a claim for refund bars a recovery on such a claim in a subsequently filed suit for refund, United States v. Felt & Tarrant Manufacturing Co., 283 U.S. 269, 51 S.Ct. 376, 75 L.Ed. 1025 (1931); Angelus Milling Co. v. Commissioner of Internal Revenue, 325 U.S. 293, 65 S.Ct. 1162, 89 L.Ed. 1619 (1945). This Court has stated in Alabama By-Products Corp. v. Patterson, 258 F.2d 892, 900 (1958):
"
In this case it is clear that the taxpayer has in no way raised the reserve strengthening issue as to the extra ten percent in the claim for refund which it filed for the year 1958. The only basis upon which the taxpayer could contend to the contrary is in a document denominated "Rider No. 8" to the 1958 claim. For the better understanding of the holding on this issue we duplicate this rider herewith:
The taxpayer contended that item listed (b) "reserves of policies which became participating during the year," had been treated erroneously, and should be changed by increasing the deduction for nonparticipating contracts by the sum of $2,949,993. In the tabulation shown above, it listed the item of $820,068 under this general heading for the computation of the deduction for nonparticipating contracts but it made no claim thereabout. It plainly indicated that the taxpayer made no contest with respect to disallowance of the bracketed amount, since it showed the amount both at the end of the year and the beginning of the year. There is nothing on this schedule or any other part of the claim or any document submitted to the trial court by which the taxpayer raised the contention which it now seeks to raise in the suit for refund that the Commissioner had improperly disallowed the item of 10% of $820,068 during the tax year 1958. The trial court's response to the Government's challenge to its jurisdiction to consider...
To continue reading
Request your trial
-
Security Ben. Life Ins. Co. v. United States
...deduction, so there is nothing to spread over a longer period of time. This fact distinguishes the case from Southwestern Life Ins. Co. v. U. S., 560 F.2d 627 (5th Cir. 1977). To the extent that defendant seeks to force such a spread, it contravenes the clear Congressional intent underlying......
-
Hills v. C. I. R.
...§ 166 that a creditor reasonably pursue a debtor before a debt is deductible as a bad debt. See, e.g., Southwestern Life Ins. Co. v. United States, 560 F.2d 627, 643-44 (5th Cir. 1977), cert. denied, 435 U.S. 995, 98 S.Ct. 1647, 56 L.Ed.2d 84 (1978) (obligations are not deductible bad debts......
-
Foyt v. U.S., 76-3928
...301.6402-2(b)(1). This Court has applied the regulation concerning variance with rare exception. E. g., Southwestern Life Insurance Co. v. United States, 560 F.2d 627 (1977); Carmack v. Scofield, 201 F.2d 360 (5th Cir. 1953); Snead v. Elmore, 59 F.2d 312 (5th Cir. 1932); J. P. Stevens Engra......
-
Liberty Nat. Life Ins. Co. v. U.S.
...REVERSED. 11 1 See, e. g., Republic Nat'l Life Ins. Co. v. United States, 594 F.2d 530 (5 Cir. 1979); Southwestern Life Ins. Co. v. United States, 560 F.2d 627 (5 Cir. 1977), cert. denied, 435 U.S. 995, 98 S.Ct. 1647, 56 L.Ed.2d 84 (1978); Great Commonwealth Life Ins. Co. v. United States, ......