Allis v. La Budde, 7857.
| Decision Date | 15 June 1942 |
| Docket Number | No. 7857.,7857. |
| Parties | ALLIS v. LA BUDDE et al. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Arthur W. Fairchild, Frederic Sammond, and Theodore C. Bolliger, all of Milwaukee, Wis. (Miller, Mack & Fairchild, of Milwaukee, Wis., of counsel), for appellant.
Robert R. Barrett, of Washington, D. C., Samuel O. Clark, Jr., and J. Louis Monarch, Asst. Attys. Gen., and Carl J. Marold, Sp. Assts. to Atty. Gen., and Berthold J. Husting, U. S. Atty., of Milwaukee, Wis., for appellee.
Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.
The question presented by this appeal is whether certain installment payments received by appellant in the tax years of 1934 and 1935, under a life insurance contract, should be included in her gross income for taxing purposes for those years. The District Court rendered judgment against her in her suit to recover taxes alleged to have been illegally assessed against and collected from her.
The facts were all stipulated. Appellant was the beneficiary of six policies having a total face value of $251,000, issued on the life of her husband who died in 1918. The policies were issued during the years 1908 to 1910, and prior to his death the insured had exercised options offered in each, providing that upon his death the liability of the insurer on each should be discharged by payments to the beneficiary in monthly installments for ten years certain, and thereafter during her lifetime. The amount of the monthly payments was to be governed by the age of the beneficiary at the death of the insured. Appellant was sixty-four years old when the policies matured by reason of the death of her husband.
During the period from the death of the insured up to the taxable years, from 1918 to 1934, appellant received from the various insurance companies payments totalling $323,795, and in each of the years, 1934 and 1935, she received approximately $21,000, of which all but a negligible amount of dividends on one of the policies constituted the installment payments provided by the contracts. She disclosed the receipt of the payments for the first time in her return for the year 1935, but did not report them as taxable income. The Commissioner determined that the payments for 1934 and 1935 should be included in her income and accordingly asserted a deficiency in income taxes as to each year, and assessed the tax which appellant paid under protest, and then filed claim and suit to recover.
Section 22(b) (1) of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Code, § 22(b) (1), provides for the exclusion from gross income of, "Amounts received under a life insurance contract paid by reason of the death of the insured, whether in a single sum or otherwise (but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payment shall be included in gross income)."
Pursuant to the Act, the Commissioner promulgated Treasury Regulations 86 providing as to this section that:
Commenting on the excess of payments over the face value of the policies, the District Court held that the insurers were enabled to make such payments because they had retained the principal fund and had the use of it from the date of the death of the insured, and that the payments in excess of the face amounts constituted either interest or some other increment which accrued upon the funds retained. Conceding that a broad interpretation of the statutory phrase "amounts received under a life insurance contract," would permit extension of the tax exemption to income increment as well as the capital in life insurance optional payments, he held that such interpretation was contrary to the general rule of construction of exemption statutes, and to what he believed was the intent of Congress. He therefore dismissed the complaint, refusing to follow certain decisions of the First and Second Circuit Courts of Appeals which adopted the "broad interpretation."1
While we have no doubt as to the power of ...
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