Great Southern Life Ins. Co. v. Commissioner of Int. Rev., 8177.
| Decision Date | 17 March 1937 |
| Docket Number | No. 8177.,8177. |
| Citation | 89 F.2d 54 |
| Parties | GREAT SOUTHERN LIFE INS. CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Walter E. Barton, of Washington, D. C., for petitioner.
Edward F. Horton, J. Louis Monarch, and Sewall Key, Sp. Assts. to Atty. Gen., Robert H. Jackson and James W. Morris, Asst. Attys. Gen., and Herman Oliphant, Gen. Counsel, Dept. of Treasury, and John D. Kiley, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.
Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.
This petition presents for review the adverse rulings of the Board in a proceeding for redetermination of deficiencies for the calendar years 1928, 1929, and 1930. The Board's opinion, reported in 33 B.T.A. 512, quite fully and correctly states the facts out of which arise the five questions for decision. We will restate the facts as to each question, not in detail, but in summary as they bear upon each. The five questions presented are:
(1) Whether personal property taxes paid by petitioner to the State of Texas during the years 1928, 1929, and 1930, respectively, under its laws, constituted deductible investment expenses within the meaning of section 203 (a) (5) of the Revenue Act of 1928 (26 U.S.C.A. § 203 and note).
(2) Whether petitioner realized interest income during the year 1928 in the amount of $27,364.26 on the foreclosure of a certain collateral loan No. 28 to one R. C. Toombs, or only $16,833.33.
(3) Whether the petitioner, which kept its books and made its returns on the cash receipts and disbursements basis for 1930, realized taxable income of $45,802.38 in that year within the meaning of section 203 (a) (2) of the Revenue Act of 1928 (26 U.S.C.A. § 203 note), on the receipt during the year 1930 of receiver's certificates of the International Life Insurance Company in said amount.
(4) Whether petitioner, under the provision of section 203 (a) (2) of the Revenue Act of 1928, may include in its reserve funds required by law at the beginning of the tax year the reserve funds on policies of other insurance companies reinsured and acquired by purchase by petitioner after January first of the taxable year.
(5) If they may be, whether the allowance should be as of the beginning of the taxable year or as of the respective dates when the policies were reinsured or acquired.
The Personal Property Taxes.
Upon this question, these are the controlling facts: Petitioner is a life insurance company, organized under the laws of the State of Texas. By the laws of that State, a domestic insurance company is required to pay taxes on its personal property. Under the statute the taxable value of its personal property is arrived at by deducting from the total valuation of its assets, first the reserves and then the assessed value of its real estate. Here this was arrived at by deducting the value of its assessed realty from its capital and surplus. Petitioner paid personal property taxes arrived at in that way as follows:
1928 ...................... $66,565.54
1929 ...................... 62,894.21
1930 ...................... 94,178.47
During these years petitioner owned investments in an amount equal to its reserves, capital, and surplus. The point for decision is the narrow one, whether these taxes are deductible as investment expenses under section 203 (a) (5).1 Petitioner concedes that the statute does not in terms authorize the deductions claimed. It insists, however, that in the absence of statute or regulations excluding them they must be considered as included in investment expenses. In support of this contention it presses us with arguments drawn from professorial and scholastic characterizations,2 reports of committees of Congress, and finally with considerations of discrimination and hardship resulting from a different construction. These considerations are that other corporations, including other kinds of insurance companies are specifically allowed such tax deductions. The argument is that not to construe investment expenses as including such taxes in the case of life insurance companies would be to impute to Congress a manifestly unjust intention.
Respondent points out that deductions are matters of grace, and can be claimed and enjoyed only as granted, and that Congress has never authorized the deduction of taxes as expenses, but always as taxes. He insists that to impute to Congress in the face of that uniform practice an intent to allow tax deductions as investment expenses would be not to construe but to rewrite the statute. He enforces this position by calling attention to the grant by name of tax deductions in subdivision 6 of section 203 (a) of the act (26 U.S.C.A. § 203 and note), immediately following the section in question. We think respondent and the Board have the right of it. We are not impressed with the petitioner's arguments to the contrary. The scholastic definition invoked lacks both authority and appositeness. It relates not to taxation but to management. Besides its allinclusiveness embracing items never regarded in the law of taxation as expenses deprives it of authoritative force. Reference to committee reports are no more helpful, while the argument of discrimination and hardship falls in the light of the fact that Congress has provided for life insurance companies, and they have accepted, a special method of taxation which must be applied as provided.
Interest Income for 1928.
This question presents little difficulty. In 1928 petitioner foreclosed upon, and sold, collateral pledged with it by Toombs, crediting the note with the full amount of the principal, and interest of $27,364.26. It returned this sum as interest collected in 1928, but contended before the Board that no part of it was received in that year. If nothing more appeared than this, clearly this interest item would be regarded as interest received and taxable in that year. Helvering v. Midland Mutual Life Insurance Co., 57 S.Ct. 423, 81 L.Ed. ___, February 15, 1937. Petitioner, however, insists that though it credited that amount of interest on its bid, it because of court orders received interest only to the extent of $16,833.33. This contention is based on an order entered in July, 1930, in the receivership of International Life Insurance Company, whose stock it was that petitioner had held as collateral and sold, to the effect that interest on the loan should run only from January 23 to August 15, 1928. It insists that this order had the effect of actually reducing to that amount the interest petitioner claimed to have received. Respondent points out that whatever effect this order might have had on the taxing situation was nullified by another order entered in the same year directing issuance to petitioner of receiver's certificates including an amount for interest of $27,364.26. We think it clear that taken as a whole the facts fully support the finding of the Commissioner and the conclusion of the Board.
$45,802.38 Interest Income for 1930.
This item of interest, like the one just preceding, arose in connection with the Toombs note and collateral. The precise question to be determined is whether by acceptance in 1930 of receiver's interest-bearing certificates for $45,802.38 for accrued interest on the Toombs loan to the date of the issuance...
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