Commissioner of Internal Revenue v. Meyer

• Decision Date: 09 December 1943
• Docket Number: No. 9439.,9439.
• Citation: 139 F.2d 256
• Parties: COMMISSIONER OF INTERNAL REVENUE v. MEYER et al.
• Court: U.S. Court of Appeals — Sixth Circuit

139 F.2d 256 (1943)

COMMISSIONER OF INTERNAL REVENUE v. MEYER et al.

No. 9439.

Circuit Court of Appeals, Sixth Circuit.

December 9, 1943.

Ray A. Brown, of Washington, D.C. (Samuel O. Clark, Jr., Sewall Key, and Warren F. Wattles, all of Washington, D. C., on the brief), for petitioner.

P. McKinley Harris, of Louisville, Ky., for respondent.

Before HICKS, HAMILTON, and McALLISTER, Circuit Judges.

HAMILTON, Circuit Judge.

On December 13, 1935, respondent, Peter H. Meyer, Jr., then fifty-nine years of age, paid $55,000 to the Prudential Insurance Company of America, and received from that company in form a single premium life insurance policy of $50,000 with respondent, Cordelia Meyer, his wife, as beneficiary, and in form an annuity contract, both on his life. The insurance company allocated $35,642 out of the $55,000 as the premium on the alleged life insurance policy and $19,358 to the purchase of the annuity. On December 30, 1935, on the written request of the insured, the insurance company cancelled the $50,000 policy and in lieu thereof, issued two policies with the same beneficiary, one for $36,000 and the other for $14,000, the new policies bearing date December 13, 1935. The insurance company then reallocated the $35,642 premium to the two policies of $36,000 and $14,000 in the amount of $25,662.24 and $9,979.76 respectively.

Under the annuity contract, the insurance company agreed to pay to the respondent, Peter H. Meyer, Jr., $1,573.81 annually during his lifetime, commencing December 13, 1936, and terminating with the last periodical payment before his death. In accordance with the terms of the contract, the insurance company paid respondent $1,573.81 during each of the tax years 1937 and 1938. Respondents filed joint income tax returns for 1937 and 1938 and in each of them reported $580.74 income out of the annual payments received from the insurance company. The sum reported each year was equal to three percent of the $19,358 which the insurance company had allocated as the purchase price of the annuity. The Commissioner included the entire sum received from the insurance company in the gross income of the respondent, Peter H. Meyer, Jr., for each of the years in question. The United States Tax Court reversed the Commissioner, from which decision this appeal is prosecuted.

Section 22(b) (2) of the Revenue Act of 1936, ch. 690, 49 Stat. 1648, Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 22(b) (2), excludes from gross income amounts received under a life insurance or endowment contract, but if such amounts exceed the aggregate premiums or consideration paid, then the excess shall be included in gross income. Amounts received as an annuity under an annuity or endowment contract shall be included in gross income except there shall be excluded from such gross income the excess received in any taxable year over an amount equal to three percentum of the aggregate premiums or consideration paid, until the aggregate amount excluded from gross income on account of such payments equals the aggregate premiums or consideration paid.

The question we have here is whether the sums received by respondent were received as an annuity as that word is used in the applicable revenue statute or whether the sums received were interest upon the amount respondent had paid to the insurance company. The form in which the contracts were cast by the agreement of the parties is not determinative of the issue. Stearns Co. v. United States, 291 U.S. 54, 61, 54 S.Ct. 325, 78 L.Ed. 647; Aluminum Castings Co. v. Routzahn, 282 U.S. 92, 99, 51 S.Ct. 11, 75 L.Ed. 234. It is settled that neither of the contracts in question was an insurance agreement (Helvering v. Le Gierse, 312 U.S. 531, 541, 61 S.Ct. 646, 85 L.Ed. 996; Estate of Keller v. Commissioner, 312 U.S. 543, 545, 61 S. Ct. 651, 85 L.Ed. 1032), but this fact throws no light on the issue here. In the Le Gierse and Keller cases, the Supreme Court decided that proceeds of contracts with an insurance company of similar import to those with which we are here concerned were not insurance as that term was used in Section 302(g) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 231, but that the proceeds of the policies were taxable under Section 302(c) of the Revenue Act of 1926 as amended as a transfer to take effect in possession or enjoyment at or after death.

Decisions construing other statutes are authority where such statutes are identical or nearly identical in language or in principle with the one under review, but the dissimilarity between the object and purposes of the estate tax statute and the income tax statute with which we are concerned is so great that the decisions referred to have no application to the case at bar. An estate tax is measured by the capital of the estate, and an income tax is measured by the realized increment of capital...