ACACIA MUTUAL LIFE INSURANCE COMPANY v. United States, Civ. No. 16469.
| Decision Date | 26 July 1967 |
| Docket Number | Civ. No. 16469. |
| Citation | 272 F. Supp. 188 |
| Parties | ACACIA MUTUAL LIFE INSURANCE COMPANY v. UNITED STATES of America. |
| Court | U.S. District Court — District of Maryland |
Laurens Williams, James V. Heffernan and Sutherland, Asbill & Brennan, Washington, D. C., and William H. Gorman, II, and Niles, Barton, Gans & Markell, Baltimore, Md., for plaintiff.
Moshe Schuldinger and Allen L. Schwait, Dept. of Justice, Mitchell Rogovin, Asst. Atty. Gen., Washington, D. C., and Thomas J. Kenney, U. S. Atty., and Ronald T. Osborn, Asst. U. S. Atty., Baltimore, Md., for defendant.
Acacia Mutual Life Insurance Company (Acacia) sues here to recover the sum of $82,279.36, representing the amount of withholding taxes and interest paid under protest for the years 1958, 1959 and 1960. Acacia is a mutual life insurance company doing business in some thirty-three states and the District of Columbia.
In the years in question, meetings were held by Acacia in various resort areas attended by branch managers, unit managers, agents and home office personnel, as well as by some of their wives. Acacia paid the expenses of all employees and wives who attended these meetings. Following audit of Acacia's Employer's Quarterly Federal Tax Return (Form 941) for the three years in question, the Commissioner of Internal Revenue claimed that such expenses represented wages within the meaning of § 3401(a) of the Internal Revenue Code of 1954, that Acacia was required to withhold upon such wages under § 3402(a) and that Acacia was liable for failure to withhold under § 3403.1 Deficiencies were subsequently assessed against Acacia, and $82,279.36 was thereafter paid on October 14, 1964, representing the amount of tax plus interest claimed by the Government.2 After duly filing a claim for refund with the District Director of Internal Revenue at Baltimore, Maryland, Acacia thereafter timely filed suit in this Court seeking to recover the full amount paid plus interest from the date of payment.
The parties have entered into a formal Stipulation of Facts which includes over 280 documentary exhibits. In addition, Acacia called some ten witnesses to testify, and other exhibits were admitted in evidence at the trial.
With 65 branch offices maintained in the District of Columbia and the 33 states in which it does business, Acacia sells only life insurance and annuities. The personnel of the various branch offices include branch managers, unit managers and agents (or salesmen), as well as the necessary clerical and other administrative employees. Practically all of Acacia's sales are made by members of this so-called "Agency Force," the size of which ranged from 500 to 542 persons for the years involved here.
The Home Office located in the District of Columbia has primary responsibility for recruiting, training and supervising the Agency Force. Each branch manager is responsible for such activities in the geographical area in which his branch operates, while unit managers, acting under branch managers, have similar responsibilities in small groups or units of agents within the branch.
After a preliminary period, all members of the Agency Force are compensated for their work by commissions, monthly income and bonuses, all related to the production of new business by and the amount of business in force in the account of a branch office, a unit or an agent. Some agents receive supplemental compensation under a financing agreement.
A continuing problem encountered by Acacia in its operations has been the recruitment, training and retention of agents. During a three-year period commencing July, 1963, aptitude tests were administered to 3545 prospective agents, of which 386, or about 11%, were employed.3 Of those actually placed under contract, 50% left Acacia's employ within the first twelve months; another 16% left during the second year, and yet another 11% during the third year. After five years, only 16%, or one out of six, of those originally employed were still with the Company.
For many years Acacia has been conducting meetings of certain members of its Agency Force held in different resort areas. In some years, it holds only "leaders" meetings, attended by more select, higher caliber members of the Agency Force. In other years, it holds both leaders meetings and "regional" meetings, the latter being attended by a larger group of its personnel.4
In 1958, Acacia held an Eastern Regional and an Eastern Leaders Meeting as well as a Western Regional and a Western Leaders Meeting. The eastern meetings in 1958 were held at The Greenbrier Hotel, White Sulphur Springs, West Virginia, as follows:
Meeting Dates
Regional August 31-September 3
Leaders September 4-September 5
The western meetings in 1958 were held at The Stanley Hotel, Estes Park, Colorado, as follows:
Meeting Dates
Regional September 21-September 24
Leaders September 25-September 26
The attendance at these meetings was as follows:
Home
Agency Agency Home Office
Force Force Wives Office Wives
Meeting Qualifying Attending Attending Personnel Attending Children
Attending Attending
Eastern
Regional 225 213 126 18 7 53
Eastern
Leaders 78 77 71 12 5 31
Western
Regional 141 128 77 18 6 17
Western
Leaders 44 44 41 18 6 8
In 1959, one meeting was held, a National Leaders Meeting, at the Palm Beach-Biltmore Hotel, Palm Beach, Florida, on March 23-25. Attending at this meeting were the following:
Agency Agency Home Home
Force Force Wives Office Office
Qualifying Attending Attending Personnel Wives Children
Attending Attending Attending
172 166 154 15 6 65
In 1960, as in 1958, an Eastern Leaders Meeting and an Eastern Regional Meeting, as well as a Western Leaders Meeting and a Western Regional Meeting, were held. The 1960 eastern meetings were held on April 4-8 at the Belleview-Biltmore Hotel, Belleaire, Florida, and the 1960 western meetings were held on May 2-6 at the Camelback Inn, Phoenix, Arizona.
In attendance at the 1960 meetings were the following:
Home
Agency Agency Home Office
Force Force Wives Office Wives
Qualifying Attending Attending Personnel Attending Children
Meeting Attending Attending
Eastern
Leaders 69 66 58 18 5 24
Eastern
Regional 253 239 114 18 5 52
Western
Leaders 42 37 34 16 5 8
Western
Regional 119 108 59 16 4 25
Acacia paid all of the expenses of those in attendance at these meetings, including the expenses of wives, except that it did not pay for personal expenses, nor the expenses of children who attended. The number of Home Office personnel attending the meetings depended on the expected need at each meeting and the subjects to be discussed. Other personnel had to qualify for attendance in one way or another.
All of Acacia's branch managers except those whose performance was so poor that their contracts were about to be terminated were requested to attend one of the regional meetings held in 1958 and 1960. A branch manager was qualified to attend one of the leaders meetings in those two years if in the calendar year preceding such meeting he had scored 125 or more points on a rating system which Acacia maintained for branch and unit managers. A score of 100 or more qualified a branch manager to attend the National Leaders Meeting in 1959. The rating system was based on the awarding of points for various aspects of a manager's activities including development of manpower, level of production, quality of business and development of competent unit or assistant managers.
Wives of all branch managers attending the regional meetings were also qualified to attend if in the preceding calendar year the branch manager had scored 100 or more points under such rating system. Every wife of a branch manager qualified to attend a leaders meeting was likewise qualified to attend such a meeting.
With reference to unit managers, a similar rating system was in effect. For the years in question, 50 or more points were necessary to attend a regional meeting, 125 or more for a leaders meeting and 100 or more for the national meeting in 1959.5 Wives of unit managers could attend the regional meetings if their husbands had scored 100 or more rating points. Every wife of a unit manager qualified to attend one of the leaders meetings was likewise eligible to attend such meeting.
The standard for qualification of agents was based upon the record of an agent's performance during a predetermined period prior to the meeting. Such period was the preceding eighteen months for the 1958 and 1960 regional meetings and the preceding calendar year for all the leaders meetings. The standards for qualification varied from time to time. For the 1958 regional meeting, it was required that an agent during the qualification period must have sold "net new business" of $300,000,6 that the ratio of net new...
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