Equitable Life Assur Soc of United States v. Commissioner of Internal Revenue

• Decision Date: 27 March 1944
• Docket Number: No. 492,492
• Citation: 64 S.Ct. 722,321 U.S. 560,88 L.Ed. 927
• Parties: EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES v. COMMISSIONER OF INTERNAL REVENUE
• Court: U.S. Supreme Court

321 U.S. 560

64 S.Ct. 722

88 L.Ed. 927

EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES

v COMMISSIONER OF INTERNAL REVENUE.

No. 492.

Argued March 8, 9, 1944.

Decided March 27, 1944.

Rehearing Denied April 24, 1944.

See 322 U.S. 767, 64 S.Ct. 941.

Mr. John L. Grant, of New York City, for petitioner.

Mr. Chester T. Lane, of Washington, D.C., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The question in this case is whether petitioner, a mutual life insurance company, was entitled to deduct from its gross income for 1933 'excess interest dividends' paid within that year. The deduction was authorized if the amounts were 'interest' paid on 'indebtedness'¹ within the meaning of § 203(a)(8) of the Revenue Act of 1932, 47 Stat. 169, 225, 26 U.S.C.A. Int.Rev.Acts, pages 547, 548. The Tax Court denied the deduction. 44 B.T.A. 293. The Circuit Court of Appeals affirmed. 137 F.2d 623. The case is here on a petition for a writ of certiorari which we granted because the decision below and Penn Mutual Life Ins. Co. v. Commissioner, 92 F.2d 962, from the Third Circuit conflicted with Commissioner v. Lafayette Life Ins. Co., 67 F.2d 209, from the Seventh.

The facts are stipulated and show the following: During and prior to 1933 petitioner issued life insurance policies which gave to the insured (and in some cases to the beneficiary) the right to have petitioner hold the face amount of the policies upon their maturity under one or more of several optional modes of settlement in lieu of payment in a lump sum. These optional modes of settlement are exercised under supplementary contracts. Thus one form of supplementary contract provides that the amount of the policy shall be left on deposit with petitioner. And it is provided in case of this, as well as the other types of supplementary contracts which are involved,² that 'if in any year the Society declares' that funds held under these options shall receive interest in excess of 3% per annum, the payments under them 'shall be increased for that year by an Excess Interest Dividend as determined and apportioned by the Society.' During the year 1933 some $534,000 of excess interest dividends was paid by petitioner under these supplementary contracts. The amount so paid accrued during the year at the rate which had been declared by petitioner's Board of Directors at the beginning of that year.

Petitioner's argument runs as follows: Nothing in the supplementary contracts or underlying policies conditions the payment of excess interest dividends on the existence of a surplus. The policies and the statutes authorizing their issuance negative the idea that the payment of these excess interest dividends constitute a distribution of surplus or of earnings of prior years. Petitioner's declaration at the beginning of 1933 that it would pay excess interest dividends in that year at a specific rate constituted an offer. Those who elected in 1933 to keep the funds on deposit, rather than to withdraw the amounts of the policies which had become payable during the year, accepted that offer. It is reasonable to assume that but for the declaration at the beginning of the year the new supplementary contracts would not have been made. In at least some of the cases where the funds were already on deposit at the beginning of 1933 the beneficiaries could have withdrawn them on demand. By refusing to exercise that right and by leaving the funds on deposit the beneficiaries accepted petitioner's offer. And, it is again asserted, but for the declaration of excess interest dividends, it is reasonable to assume that petitioner would not have been permitted to retain and use those funds during that year. As to funds on deposit at the beginning of 1933 and over which the beneficiaries had no power of withdrawal, the argument is that the original promise to pay the excess interest dividends, though conditional, was a promise to pay 'interest'.³

While these are interesting questions which are propounded, the facts on which most of them turn were not determined by the Tax Court. Its findings of fact did not go beyond the stipulation. And it apparently was not asked to go farther. It based its ruling on Penn Mutual Life Ins. Co. v. Commissioner, supra. It may be that custom or a course of dealing or other circumstances would warrant findings of fact which would support at least part of the claimed deduction. But more proof is needed than the provisions of the policies and the contents of the stipulation. It is not our task to draw inferences from facts or to supplement stipulated facts. That function rests with the Tax Court. We may modify or reverse the decision of the Tax Court only if it is 'not in accordance with law.' 44...