Commissioner of Internal Revenue v. Inter-Mountain Life Ins. Co., 1003.

• Decision Date: 11 June 1934
• Docket Number: No. 1003.,1003.
• Parties: COMMISSIONER OF INTERNAL REVENUE v. INTER-MOUNTAIN LIFE INS. CO.
• Court: U.S. Court of Appeals — Tenth Circuit

71 F.2d 962 (1934)

COMMISSIONER OF INTERNAL REVENUE v. INTER-MOUNTAIN LIFE INS. CO.

No. 1003.

Circuit Court of Appeals, Tenth Circuit.

June 11, 1934.

Edward H. Horton, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Seawall Key, Sp. Asst. to Atty. Gen., on the brief), for petitioner.

Delos C. Johns, of Kansas City, Mo. (Charles E. McLaughlin, of Sacramento, Cal., Homer H. Berger, of Kansas City, Mo., and Abram R. Serven, of Washington, D. C., on the brief), for respondent.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

McDERMOTT, Circuit Judge.

Consistent with its many rulings on the point, the Board of Tax Appeals allowed respondent a deduction in its 1922 return (Revenue Act 1921, § 245 (a) (2), 42 Stat. 261) on account of reserve funds held to meet its liabilities to holders of matured, unsurrendered and unpaid coupons attached to its twenty-payment life coupon nonparticipating policies. The Commissioner has petitioned to review.

Respondent is a Utah corporation. Nineteen coupons are attached to a policy which is fully paid in twenty years — one maturing each policy year after the first. Each is a promise to pay the amount thereof to the policyholder in event all premiums due at the maturity of the coupon have been paid. The insured may use any coupon to purchase additional paid-up insurance. Coupons which have been paid, or which have been used to purchase such additional insurance, are not here involved. We are here concerned only with matured but unsurrendered coupons.

Such coupons may be withdrawn in cash, with interest, at any time after maturity. But they need not be. The insured may, at his own option, use them to mature the policy at the end of twenty years for $14,130 instead of $10,000, if he is then insurable; or at the end of twenty years, without medical examination, use them to purchase an annuity of $174.40 payable during his life; or, without medical examination, use the first fourteen coupons to mature the policy for the full $10,000 at the end of fifteen years instead of twenty. In short, the company has agreed to issue life insurance or an annuity to the policyholder in exchange for his coupons, at the option of the insured. The reserves in question are set up against that contingent liability to the policyholder. Until the insured elects to withdraw in cash, the company faces the contingent liability of their conversion into life insurance.

In his brief, the Commissioner concedes that the Utah...