Atlas Life Insurance Company v. United States
| Decision Date | 01 May 1963 |
| Docket Number | Civ. No. 5413. |
| Citation | 216 F. Supp. 457 |
| Court | U.S. District Court — Northern District of Oklahoma |
| Parties | ATLAS LIFE INSURANCE COMPANY, a Corporation, Plaintiff, v. UNITED STATES of America, Defendant. |
Dickson M. Saunders of Doerner, Stuart, Moreland, Campbell & Saunders, Byron V. Boone of Boone & Ellison, Tulsa, Okl., Thomas C. Thompson, Jr., of Bird & Thompson, Washington, D. C., for plaintiff.
Louis F. Oberdorfer, Asst. Atty. Gen., Edward S. Smith, Myron C. Baum, George A. Hrdlicka, Robert L. Waters, Attys., Dept. of Justice, Washington, D. C., John M. Imel, U. S. Atty., Sam Taylor, Asst. U. S. Atty., for defendant.
Charles E. Norman, Tulsa, Okl., filed brief amicus curiae for City of Tulsa.
Peyton Ford, of Ford, Larson, Greene & Horan, Washington, D. C., and Devereaux F. McClatchey, Atlanta, Ga., filed brief amicus curiae of Nat. Assn. of Life Companies.
J. Lon Duckworth, Atlanta, Ga., filed brief of Life Insurers Conference as amicus curiae.
This case involves a claim for income tax refund for the year 1958. Atlas Life Insurance Company, a corporation, hereinafter referred to as Atlas or Taxpayer, filed this suit against the United States of America seeking a refund in the sum of $22,782.35, or such greater amount as may be due, for alleged over-assessment by the Government of income taxes for the year 1958. The claim for refund has been reduced to $12,692.93, not by the pleadings, but by the evidence offered on behalf of Atlas and by Atlas' final Brief filed with the Court.
Plaintiff filed its tax return for the year 1958 in due time and thereafter timely filed its claim for refund. No action having been taken by the Government within the time provided by law, 26 U.S.C.A. § 7422(a), thereafter this action was filed, as required by 26 U.S.C.A. § 6532(a).
Certain adjustments in the Atlas' return show it entitled to a refund of $1,440.74. This amount is not in dispute.
The claim made here by Atlas involves the application and interpretation of the Internal Revenue Code of 1954, as amended by the Life Insurance Company Income Tax Act of 1959, 26 U.S.C.A. § 801 et seq.
Atlas contends that by the application of the definition of "Taxable Investment Income" (Section 804(a) (2)) and of the application of the definition of "Gain From Operations" (Section 809(b) (1)) of the Act results in the imposition of a tax on tax-free interest from state and municipal bonds owned by Atlas, which interest income should be excluded from its gross income under Section 103 of the Internal Revenue Code of 1954, 26 U.S. C.A. § 103; Atlas claims that the Government refused to make adjustments required by Sections 804(a) (6) and 809 (b) (4), thus imposing a tax on tax-exempt interest which is excluded from gross income under Section 103, supra.
By the Internal Revenue Code of 1954, as amended by the Life Insurance Company Act of 1959, hereinafter called the Act, Congress provided a method of taxing life insurance companies, taking into consideration interest which is not to be included in gross income under Section 103. This interest is one of several factors to be employed in determining the amount of the Taxpayer's taxable income. We are here concerned only with two phases of the various steps involved in arriving at taxable income; that is, (1) taxable investment income, and (2) gain from operations.
Considering the first, "taxable investment income": The Act, Section 804(a) (1) and (2) provides:
Section 804(a) (6) provides:
The pertinent section of the Act relating to gains from operations, Section 809(b), provides:
Section 809(b) (4) provides:
There is no dispute about the facts. A question of law only is presented here which can be resolved by an examination of the testimony, briefs, and especially the Taxpayer's return and the definition of "taxable investment income" and "gains from operations" as defined by the Act, supra.
Determination of taxable investment income and gain from operations is determined as follows: Taxable investment income: from gross investment income, Section 804(b), which includes tax-exempt interest, less certain deductions, Section 804(c) (1), resulting in a figure known as "investment yield," Section 804(c). This yield is then divided into two parts, (1) the policyholders' share, (2) the company's share. This division is made by the use of a percentage determined as provided by Section 805 of the Act. The entire part belonging to the policyholders as determined by the formula, including tax-exempt interest, is excluded from taxable income, Section 804(a) (1). The company's portion of each item of investment yield is then reduced by its portion of tax-exempt interest and other specified deductions, Section 804(a) (2). The resulting figure is the company's tax base for "taxable investment income," the first phase upon which the tax is imposed. Tax-exempt interest on the company's share of investment income, as can be seen, is wholly excluded in arriving at the final figure representing taxable investment income.
Turning to the second phase, gain from operations: Entering into the Taxpayer's taxable income is included the company's share of each item of investment yield, including tax-exempt interest, long-term capital gain, and other items includable in gross income under Section 61, Internal Revenue Code of 1954 (26 U.S.C.1958 edition, Section 61) not otherwise included. Sections 809(b) (1) and 809(c). This amount is reduced by certain deductions, including the company's share of tax-exempt interest (809 (d) (8)). Tax-exempt interest with respect to gain from operations is treated exactly in the same manner as such interest is treated in determining taxable investment income.
The problem involved here is the application of the formula for treatment of tax-exempt interest with respect to taxable investment income and gain from operations. By use of the formula provided by Section 804(a) (2) and Section 809(b) (1) the percentage of the policyholders' share of income in this case is less than it would be if tax-exempt interest was not included or considered in gross income for the purpose of the computation as provided by Section 804, supra, thereby leaving a greater portion as the company's share, resulting in a greater tax liability.
Atlas' Exhibit 6,...
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ATLAS LIFE INSURANCE COMPANY v. United States, 7424.
...Chief Judge. The taxpayer, a life insurance company, appeals from a judgment of the District Court (Atlas Life Insurance Co. v. United States of America, D.C., 216 F.Supp. 457), denying refund of income taxes paid by it, pursuant to The Life Insurance Company Income Tax Act of 1959. 26 U.S.......
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