Commissioner of Int. Rev. v. Volunteer State L. Ins. Co., 7939.
| Decision Date | 20 May 1940 |
| Docket Number | No. 7939.,7939. |
| Citation | 110 F.2d 879 |
| Parties | COMMISSIONER OF INTERNAL REVENUE v. VOLUNTEER STATE LIFE INS. CO. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Edward H. Horton, Sp. Asst. to Atty. Gen., (James W. Morris, Asst. Atty. Gen., and Sewall Key and Edward H. Horton, Sp. Assts. to Atty. Gen., on the brief), for petitioner.
F. Linton Martin, of Chattanooga, Tenn., and Robert A. Littleton, of Washington, D. C., (Robert A. Littleton, of Washington, D. C., and F. Linton Martin and Miller, Miller & Martin, all of Chattanooga, Tenn., on the brief), for respondent.
Before ALLEN, HAMILTON, and ARANT, Circuit Judges.
Writ of Certiorari Denied May 20, 1940. See 60 S.Ct. 1080, 84 L.Ed. ___.
The sole question presented in this appeal is whether, in computing income tax, certain items are deductible from income as investment expenses of a life insurance company, within the purview of § 203(a) (5) of the Revenue Act of 1928, 45 Stat. 791, 26 U.S. C.A. Int.Rev.Acts.1 The Commissioner seeks to review a decision of the Board of Tax Appeals (35 B.T.A. 491) holding the following items deductible as such expenses in the years 1929 and 1930:
1929
Salary, officers ................... $18,401.66
Salary, clerks ..................... 18,219.34
Mortgage loan expenses ............. 5,740.34
Postage, telephone and telegraph 772.91
Printing and stationery ............ 1,670.77
Investment and supervisory
service .......................... 1,033.91
__________
Total .......................... $45,838.93
1930
Salary, officers ................... $18,473.50
Salary, clerks ..................... 19,491.76
Directors and committee fees ....... 165.00
Mortgage loan expenses ............. 7,897.28
Postage, telegraph and telephone 847.41
Printing and stationery ............ 1,572.77
Inspection and supervisory expenses
mortgage loans ................... 1,328.87
__________
$49,776.59
The Commissioner contends that although the expenses were designated as arising from the care and operation of the taxpayer's investments, they were in reality in part general expenses assigned to or included in investment expenses, and because of this fact, under the statute, the application to the deduction of the limitation of one-fourth of one per cent. of the invested assets was required.
The only items in question are deductions for (1) postage, telephone and telegraph, (2) printing and stationery, and (3) officers' salaries.
The taxpayer showed that expenditures for postage, telephone and telegraph for each of its departments were made upon requisition, and that detailed records were kept of them. It thus had a means by which it could have ascertained, prior to making its return, the amount actually spent by the investment department for this item; but the deduction claimed was arrived at by taking ten per cent. of the total expenditures, which were obviously general expenses. The taxpayer claims that the item is still deductible, inasmuch as the amount claimed as a deduction was later proved to be less than that actually expended.
This item clearly involved an assignment of general expense, within the meaning of § 203(a) (5), and therefore is subject to the one-fourth of one per cent. limitation. In view of the mandatory provisions of the statute, it is immaterial that a subsequent check may have shown that the deduction thus arrived at is somewhat less than the amount later found to have been expended. The Board erred in holding otherwise.
The same conclusion is compelled as to the item for printing and stationery. The taxpayer owns and operates its own printing plant, which supplies all its printing necessities. Each department requisitions its needs, and bills are rendered showing charges in detail. The only evidence as to what was included in this item was that of Bork, manager of the mortgage loan department, who testified that "if it was printing it was computed on the cost of the stock plus the expense of printing and overhead for the plant, like any other printing plant." The inclusion of an allowance for "overhead" for the printing plant, which is a general expense, demonstrates that in this item general expense is "in part assigned to or included in the investment expenses," bringing into application the statutory limitation, and requiring reversal upon this point.
The deduction for salaries was the largest and the most important of the items in question.
During the years in controversy, the taxpayer made separate annual contracts with its president and treasurer, one for general, and the other for investment services. The contracts were based upon estimates made by the finance committee of the amount of time each officer would in the coming year devote to each form of service. Each officer thereafter received two checks each month, one for investment and the other for general services. The former were included in the taxpayer's investment expenses, and the Board allowed the deduction.
The Commissioner claims that this item also includes a part of the taxpayer's general expense for salaries, because the allocation is based upon an advance estimate, and not upon figures of actual investment expense incurred in the past.
On the other hand, the taxpayer claims that this deduction is expense actually incurred by and for the benefit of the investment department alone, and denies, in view of the contracts of employment, that it includes any general expense.
While §...
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