APPEAL OF UNITED STATES FIDELITY & GUARANTY CO., Docket No. 4263.

• Decision Date: 04 October 1926
• Docket Number: Docket No. 4263.
• Parties: APPEAL OF UNITED STATES FIDELITY & GUARANTY CO.
• Court: U.S. Board of Tax Appeals

5 B.T.A. 23 (1926)

APPEAL OF UNITED STATES FIDELITY & GUARANTY CO.

Docket No. 4263.

Board of Tax Appeals.

Decided October 4, 1926.

J. Kemp Bartlett, Esq., for the petitioner.

George G. Witter, Esq., for the Commissioner.

The petitioner appeals from a deficiency in income and profits tax for the year 1919 in the amount of $24,723.40, only a part of which amount is in controversy. The points in issue are: (1) The right of the petitioner to deduct from gross income $1,083.98 for net addition to reserve funds over the amount allowed by the Commissioner; (2) the right of the petitioner to receive a credit under section 238 of the Revenue Act of 1918 of $4,873.60, representing an income tax paid to the Canadian Government during the year 1919; and (3) the right of the petitioner to deduct from gross income $202.12, taxes paid to the Department of Insurance of the Dominion of Canada, which amount it failed to deduct from gross income in its income-tax return for 1919.

FINDINGS OF FACT.

The petitioner is a Maryland corporation domiciled at Baltimore. Under the provisions of the Excise Tax Act of August 5, 1909, the Income Tax Law of 1913, and subsequent income tax laws, it has made returns of net income to the Federal Government. Under the provisions of the Revenue Act of 1918, it filed a return of its income for the year 1919 with the collector at Baltimore, such return checking with its return made for the same year to the Surety Bonds Division of the Treasury Department of the United States and with the Insurance Department of the State of Maryland. In such return it claimed as a deduction from gross income a net addition to reserve funds represented by the increase in reserve funds at the close of 1919 required by the Insurance Department of the State of Maryland over the amount of such reserve funds at the beginning of the year. For years prior to 1919, and also for years subsequent to 1919, the petitioner's returns to the collector have been audited upon the basis of the published reports of insurance companies of the State of Maryland. For the year 1919, the Commissioner audited the petitioner's return upon the basis of the petitioner's return to the Insurance Department of the State of New York. The net addition to reserve funds required by the Insurance Department of the State of New York, and also by the statutes of the State of New York, was $1,083.98 less than the amount shown by its return to the Insurance Department of the State of Maryland. The reason for this discrepancy is that the petitioner during the year 1919 reinsured certain of its risks with reinsurance companies which were not admitted to do business in the State of New York. With respect to such reinsurances, the Insurance Department of the State of Maryland permitted the deduction from the premiums received of the amounts paid to the reinsurance companies and required the reserve to be computed on only the balance of the premiums received; the Insurance Department of the State of New York did not permit the deduction of such premiums paid to non-admitted reinsurance companies and computed the reserve upon the total premiums collected from the insured. The result was that the premium reserve shown by the printed report of the Insurance Department of the State of New York was higher at both the beginning and the close of the year 1919 than the reserves shown by the Maryland insurance report. The difference between the required reserve shown by the New York report was $1,083.98 less than the difference shown by the Maryland insurance report, and it is this difference which the Commissioner disallowed the petitioner to deduct from gross income in the audit of its return for the year 1919.

In its income-tax return for the year 1919, the petitioner claimed a credit against a tax due the United States of $5,075.72, representing taxes or assessments paid to the Department of Insurance of the Dominion of Canada. The petitioner did not, however, comply with the provisions of article 611 of Regulations 45 of the Treasury Department, and failed to file with its return or with the Commissioner Form 1118. For lack of proof of the character of the tax claimed as a credit and of the date of payment the Commissioner disallowed the credit.

Under the Special War Revenue Act of 1915 of the Dominion of Canada, "every company, other than a life insurance company, a company transacting marine insurance, a fraternal benefit society and a purely mutual company, licensed or registered or otherwise authorized to transact in Canada or in any province thereof the business of insurance shall pay to the Minister for the Consolidated Revenue Fund a tax of one per...