May v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 36586-36588.
| Decision Date | 22 July 1930 |
| Docket Number | Docket No. 36586-36588. |
| Citation | 20 BTA 282 |
| Parties | ISAAC MAY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. S. N. KUTTNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. MAX M. KUTTNER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Ward Loveless, Esq., for the petitioners.
W. F. Gibbs, Esq., for the respondent.
These proceedings involve proposed deficiencies in petitioners' income taxes for the calendar year 1923 as follows:
Isaac May ________________________________ $351.81
S. N. Kuttner ____________________________ 70.05
Max M. Kuttner ___________________________ 132.38
The one issue common to each of the proceedings is whether certain amounts paid to each of the petitioners during 1923 by the Rome Furniture Co., of which they were stockholders, constituted taxable dividends or were exempt from taxation as proceeds of a life insurance policy. The proceedings were consolidated for hearing and decision.
FINDINGS OF FACT.
The petitioners are individuals residing at Rome, Ga., and during 1923 were stockholders of the Rome Furniture Co.
During 1919 the Rome Furniture Co. procured a life insurance policy in the amount of $50,000 on the life of its president, F. L. Forster, paying the premiums thereon and charging the same to general expenses, and naming itself as sole beneficiary. On January 6, 1920, the Rome Furniture Co. increased Forster's salary to $25,000 and required him thereafter to pay all premiums due on the insurance policy.
During 1921 an agreement was entered into between the Rome Furniture Co., as party of the first part, and Forster, as party of the second part, the material provisions of which are as follows:
WHEREAS, Heretofore, to-wit, on the 10th day of April, 1919, the said party of the first part procured a policy of insurance upon the life of party of the second part, in which party of the first part herein was named as beneficiary, said policy of insurance being with the Mutual Life Insurance Company of New York, and being No. 2587616; and —
WHEREAS, It is desirable that the interests of the party of the first part and party of the second part in said policy of insurance, upon the death of the party of the second part, shall be fixed and determined prior to the death of party of the second part;
NOW, THEREFORE, In consideration of the premises, and of the continuance of the said policy of insurance by party of the first part and the consideration of the payment of the premiums thereon being consented to by party of the second part, he being a stockholder in said Company, and of the mutual promises each to the other hereinafter contained, it is agreed by and between said parties that upon the death of the said party of the second part, said party of the first part, its successors or assigns, shall pay from the proceeds of said policy of insurance to the administrators, executors or assigns, of party of the second part, the sum of Twenty Thousand Dollars ($20,000), which said sum shall be and become the property of the Estate of the said party of the second part herein, and shall be due and payable immediately upon the collection thereof by party of the first part; it being agreed that in the collection of said sum of Twenty Thousand Dollars ($20,000), under said policy, the said party of the first part is acting as Agent of the Estate of said party of the second part, the title and ownership of said sum being vested immediately in said Estate of said party of the second part.
Party of the first part further agrees to continue and keep in full force and effect said policy of insurance and to pay all premiums due thereon during the life of party of the second part, and in the event that it shall fail so to do party of the second part may pay such premiums, and the sum then due his Estate as aforesaid shall be the sum of Twenty Thousand Dollars plus such amounts as he shall have paid as premiums upon said policy, with interest upon said sums at the rate of 8% per annum from the date of such payments, compounded annually, which shall be held and deemed to be entire and in complete satisfaction of all interest of said party of the second part in and under said policy of insurance.
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The remainder of the benefits due under said policy of insurance, after deducting the sums due said party of the second part, as hereinabove stated, shall be and become the property of the party of the first part, to be disbursed among the stockholders of party of the first part, excepting and providing, however, that no part hereof shall inure to the benefit of any of the stock now held or owned by party of the second part, no matter to whom the same may have been transferred by party of the second part. The provisions of this paragraph of this contract being attached to the stock now standing on the books of said Company in the name of party of the second part, and upon each Certificate of party of the second part shall be endorsed the following: "This stock subject to the distribution agreement of date_________day of_______, 1921, with reference to Insurance Policy No. 2587616, Mutual Life Insurance Company of New York," and such endorsement shall be entered upon all Certificates of stock issued upon any transfer of the stock of party of the second part, until such time as this contract shall have terminated, either by the surrender of said policy, as hereinabove provided, "on the death of party of the second part and the distribution of the benefits of said policy, as in this contract provided, but the same shall be disbursed and distributed among the other stockholders of said Company in proportion to their respective holdings at the death of the said party of the second part, or at the date of the surrender of said policy. In said distribution, the balance of the said benefit under said policy coming to the party of the first part, the stock now held by the said party of the second part and standing in his name on the books of said Company and the transferees thereof, as hereinabove provided, shall not be considered and computed as an outstanding part of the capital stock of said Company in such distribution.
In the event that the directors of party of the first part shall desire to retain said balance for use of party of the first part and not distribute the same to the stockholders, as hereinbefore provided then such distribution shall be made as a book entry and the stockholders entitled, as above provided, to said sum, shall be credited with their respective amounts thereof, and the same shall be treated as a loan by them to party of the first part, upon which they shall be entitled to receive the sum of Eight Per Cent (8%) per annum, payable annually, until such time as the said Directors may elect to pay them the sums due in accordance with said distribution."
Nothing in this contract contained shall be construed or held as a waiver of any of the rights of party of the second part as a stockholder in said Company as to any of the assets or profits of said Company, other than of the balance of the said benefits received under said policy by said Company, as hereinabove stated.
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At a meeting of the board of directors of the Rome Furniture Co. held February 15, 1921, Forster's salary for the ensuing year was fixed at $8,000 and "such additions thereto as necessary to take care of the premium to become due on life insurance policy carried on himself."
The following is an extract from the minutes of the directors' meeting of the Rome Furniture Co. held January 19, 1922:
It was suggested that S. N. Kuttner be named as Trustee to hold the insurance policy which the company carried on the life of F. L. Forster and to carry out the agreement as entered into between the company and Mr. Forster and that the balance of $8,422.02 to Mr. Forster's credit, and on which he paid the income and profits taxes for 1920, be set aside in a special account and used for the payment of premiums on this...
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