New York Life Ins Co v. Edwards Edwards v. New York Life Ins Co
| Decision Date | 19 April 1926 |
| Docket Number | 804,Nos. 712,s. 712 |
| Citation | 271 U.S. 109,70 L.Ed. 859,46 S.Ct. 436 |
| Parties | NEW YORK LIFE INS. CO. v. EDWARDS, Collector of Internal Revenue. EDWARDS, Collector of internal Revenue, v. NEW YORK LIFE INS. CO |
| Court | U.S. Supreme Court |
Mr. James H. McIntosh, of New York City, for New York Life Ins. Co.
[Argument of Counsel from Pages 110-112 intentionally omitted] Mr. Alfred A. Wheat, of Washington, D. C., for Edwards.
[Argument of Counsel from Page 113 intentionally omitted] Mr. Justice McREYNOLDS delivered the opinion of the Court.
The Insurance Company brought suit in the District Court at New York to recover of Edwards, collector, the alleged excessive sum demanded of it as income tax for the year 1913 and obtained judgment for a part. 3 F. (2d) 280. The Circuit Court of Appeals affirmed this, except as to one item. 8 F. (2d) 851. Both parties are here by certiorari, and five questions require consideration. All involve the construction or application of the Revenue Act of October 3, 1913, c. 16, 38 Stat. 114, 172. Section 2 G(a) imposed an annual tax of one per centum upon the net income of 'every insurance company organized in the United States,' and (b) directed—
'Such net income shall be ascertained by deducting from the gross amount of the income of such * * * insurance company, received within the year from all sources, (first) all the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other payments required to be made as a condition to the continued use or possession of property; (second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation by use, wear and tear of property, if any; * * * and in case of insurance companies the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided, that * * * life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder, within such year. * * *'
1. The company, a New York corporation without capital stock, does business on the mutual level premium plan and issues both 'annual dividend' and 'deferred dividend' policies. Under this plan each policy holder pays annually in advance a fixed sum which, when added to like payments by others, probably will create a fund larger than necessary to meet all the maturing policies and estimated expenses. At the end of each year the actual insurance costs and expenses incurred are ascertained. The difference between their sum and the total of advance payments and other income, then becomes the 'overpayment' or surplus fund for immediate pro rata distribution among policy holders as dividends or for such future disposition as the contracts provide. An 'annual dividend' policy holder receives his proportionate part of this fund each year in cash or as a credit upon or abatement of his next premium. 'Deferred dividend,' or, as sometimes called, 'distribution,' policies provide—
Accordingly all overpayments by deferred dividend policy holders must await apportionment until the prescribed period ends, and no one of them will receive anything therefrom if his policy lapses or if he dies before that time. The whole of this fund goes to the survivors.
Overpayments by deferred dividend policy holders for 1912 amounted to $8,189,918. The collector refused to deduct this sum from the total receipts, and demanded the prescribed tax of 1 per centum thereon. We think he acted properly. Both courts below so held.
The applicable doctrine was much considered in Penn Mutual Life Insurance Co. v. Lederer, 40 S. Ct. 397, 252 U. S. 523, 64 L. Ed. 698. We there pointed out the probable reason for the permitted noninclusion in the net income of a life insurance company of 'such portion of any actual premium received from any individual policy holder as shall have been paid back or credited to such individual policy holder, or treated as an abatement of premium of such individual policy holder, within such year.' Here it is insisted that within the meaning of the quoted provision each deferred dividend policy holder's overpayment was actually credited to him during the year; but we cannot accept this theory. The aggregate of all such payments was held for distribution among policy holders alive at the end of the period. The receipts for the year were not really diminished.
2. The company owned many bonds, etc., payable at future dates, purchased at prices above their par values, and to amortize these premiums a fund was set up. It claimed that an addition to this fund should be deducted from gross receipts. The District Court thought the claim well founded, but the Circuit Court of Appeals took another view. Unless the addition amounted to a loss 'actually sustained within the year' no deduction could be made therefor. Obviously, no actual ascertainable loss had occurred. All of the securities might have been sold thereafter above cost. The result of the venture could not be known until they were either sold or paid off 3. In 1910 the company introduced a clause into some policies by which it agreed to waive payments of premiums after proof of total and permanent disability. The...
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