Lee v. United States

• Decision Date: 18 July 1963
• Docket Number: Civ. A. No. 4091.
• Citation: 219 F. Supp. 225
• Parties: Frank M. LEE, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of South Carolina

219 F. Supp. 225

Frank M. LEE, Plaintiff, v. The UNITED STATES of America, Defendant.

Civ. A. No. 4091.

United States District Court W. D. South Carolina, Anderson Division.

July 18, 1963.

Anderson & Doyle (Cary C. Doyle) Anderson, S. C., for plaintiff.

Louis F. Oberdorfer, Asst. Atty. Gen., Washington, D. C., Edward S. Smith, George A. Hrdlicka, Norman A. Goldin, Attys. Dept. of Justice, John C. Williams, U. S. Atty., Charles Porter, Asst. U. S. Atty., Greenville, S. C., for defendant.

WYCHE, District Judge.

The plaintiff in the above entitled action seeks the refund of federal income taxes in the amount of Three Hundred, Fifty Three ($353.00) Dollars, together with interest thereon which he alleges were erroneously and illegally assessed and collected from him for the taxable years 1958, 1959, and 1960.

The facts and issue in the above entitled action have been stipulated by counsel for the parties and are as follows:

1. This is a civil refund suit for the recovery of federal income taxes for the years 1958, 1959 and 1960, claimed in the amount of $353.00, together with interest thereon, which the taxpayer-plaintiff claims was erroneously and illegally collected from him.

2. The taxpayer herein is a resident of Anderson County, South Carolina.

3. The defendant herein is the United States of America.

4. The taxpayer has complied with all statutory, jurisdiction and procedural requirements for bringing this action.

5. The Internal Revenue Service has complied with the necessary statutory requirements for the assessment and collection of the taxes sought to be recovered herein.

6. The taxpayer is and was during each of the years 1958, 1959 and 1960 employed as a proofreader by the Independent Publishing Company, a South Carolina Corporation, located in Anderson, South Carolina.

7. In each of the years 1958, 1959 and 1960, the taxpayer received taxable wages from his employer, the Independent Publishing Company.

8. The taxpayer filed federal income tax returns for each of the taxable years 1958, 1959 and 1960, in which he reported taxable wages from his employer, the Independent Publishing Company, but he did not include in his gross income in each return the sum of $627.60 which his employer paid in each said taxable years, 1958, 1959 and 1960, to the Equitable Life Assurance Society of America, a New York Corporation, as the annual premium for each respective year on a certain policy of insurance No. 12,481,251, issued by said Equitable Life Assurance Society on September 30, 1947, to the taxpayer upon his application. A genuine and correct copy of this life insurance policy No. 12,481,251, is attached to this stipulation as Exhibit "A" hereto.

9. Said Equitable Insurance Policy No. 12,481,251, provided for the payment of annual level premiums, the amount thereof being based upon the age of the taxpayer. The applicable annual premium payable thereunder for each of the years in suit was $627.60 rather than $558.10 as shown on the face of the policy.

10. The taxpayer caused a change, on December 5, 1947, in the beneficiary of the aforesaid insurance policy, as shown in the "CHANGE OF BENEFICIARY REGISTER", contained on page 10 of said policy.

11. The aforesaid insurance policy was in effect and force at all times during the years 1958, 1959 and 1960.

12. The Independent Publishing Company deducted as an item of business expense on its respective federal income tax return for 1958, 1959 and 1960, the sum of $627.60 which it paid in each said year to the Equitable Life Assurance Society as the annual premium for each said year on the aforesaid insurance policy on the taxpayer's life, No. 12,481,251.

13. Upon examination and audit of the taxpayer's returns for the years 1958, 1959 and 1960, the District Director of Internal Revenue determined that said premium payments made by the taxpayer's employer each year in the amount of $627.60 were includible in the taxpayer's gross income. On such basis, deficiencies in income tax in the amount of $353.00 were proposed, and assessed against and paid by the taxpayer. On March 6, 1962, the taxpayer timely filed claims for refund demanding the refund of said deficiency taxes in the total amount of $353.00.

ISSUE INVOLVED, Whether certain premium payments in the amount of $627.60 paid by taxpayer's employer in each of the years 1958, 1959 and 1960 on a certain policy of insurance on the life of the taxpayer are includible in the gross income of the taxpayer under Section 61(a) (1) of the Internal Revenue Code of 1954.

CONCLUSIONS OF LAW

1. The plaintiff is a resident and citizen of the State of South Carolina; jurisdiction in this action is conferred upon this Court under the provisions of 28 U.S.C.A. § 1346(a) (1).

2. "Gross income defined. (a) General definition. — Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, and similar items; * * *." 26 U.S.C.A. § 61.

3. "Gifts and inheritances. (a) General rule. — Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. * * *" 26 U.S.C.A. § 102.

4. Treasury Regulations on Income Tax (1954) Code, Sec. 1.61.2, provides: "Compensation for services, including fees, commissions, and similar items. * * * (d) Compensation paid other than in cash * * * (2) Property transferred to employee; insurance premiums paid by employer. * * * Generally, life insurance premiums paid by an employer on the lives of his employees, where the proceeds of such insurance are payable to the beneficiaries of such employees, are part of the gross income of the employees. However, premiums paid by an employer on policies of group term life insurance covering the lives of his employers are not gross income to the employees, even if they designate the beneficiaries. * * *"

5. The value of payments in kind as compensation must be included as income for income tax purposes. Amounts paid as premiums by an employer on life insurance policies covering the life of an employee constitute income to the employee-insured, where the employee controls the designation of the beneficiary, or even if the employer has designated the employee's wife, dependents or estate as beneficiary of the policy. Commissioner of Internal Revenue v. Vandeveer, (CA 6) 114 F.2d 719; Burnet v. Wells, 289 U.S. 670, 53 S.Ct. 761, 77 L.Ed. 1439; Commissioner of Internal Revenue v. Bonwit, (CA 2) 87 F.2d 764, cert. denied, 302 U.S. 694, 58 S.Ct. 13, 82 L.Ed. 536; Yuengling v. Commissioner of Internal Revenue, (CA 3) 69 F.2d 971; Miller v. Commissioner of Internal Revenue, (CA 4) 144 F.2d 287; Canaday v. Guitteau, (CA 6) 86 F.2d 303; Adams v. Commissioner, 18 B.T.A. 381; Danforth v. Commissioner, 18 B.T.A. 1221. The beneficiary of the policy in this case was designated by the plaintiff and the right to change the beneficiary was reserved in the policy exclusively to the plaintiff. The beneficiary was changed by the plaintiff in December, 1947, several months after the issuance of the policy.

6. The employer in this case did not directly or indirectly own the policy or possess or share any of the rights in or insurance benefits thereunder. The policy issued and the insurance benefits arising thereunder were for the benefit of the plaintiff, and not his employer. In Miller v. Commissioner, supra, the Court of Appeals for the Fourth Circuit, held, "The decisions in cases where an employer has paid premiums on life insurance policies issued for the benefit of an employee are in point. In such cases it is held that the amount paid as premiums is presumed to be additional compensation for the employee's services, and that it constitutes income to the employee on the theory that he has received a benefit in the form of insurance protection as a substitute for the cash payment. * * And it has been held that this is true even though the employee does not have the option to take in cash the amount paid as premiums. Brodie v. Commissioner, 1 T.C. 275."

7. The plaintiff receives a substantial insurance benefit, which he controls or designates for his benefit, as a substitute for cash payment. "Section 22(a) of the Revenue Act (of 1938, a predecessor of Section 61 of the 1954 Code) is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected."...