Penn Mut. Life Ins. Co. v. Commissioner of Internal Rev.
Decision Date | 28 October 1937 |
Docket Number | No. 6047.,6047. |
Parties | PENN MUT. LIFE INS. CO. v. COMMISSIONER OF INTERNAL REVENUE. |
Court | U.S. Court of Appeals — Third Circuit |
Robert Dechert, of Philadelphia, Pa., for petitioner.
James W. Morris, Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Edward H. Horton, Sp. Assts. to Atty. Gen., for respondent.
Before THOMPSON and BIGGS, Circuit Judges, and DICKINSON, District Judge.
This is an appeal from a decision of the Board of Tax Appeals. The petitioner is the Penn Mutual Life Insurance Company, a Pennsylvania corporation, engaged in carrying on the business of a mutual life insurance company, having no capital stock; and its policyholders constitute its members. The controversy here involved relates to alleged federal income tax deficiencies which were found by the Board of Tax Appeals to be in the amount of $38,884.14 for the year 1926, and in the amount of $26,322.55 for the year 1928. The revenue acts under which the taxes against the respondent have been levied, though of different years, are the same in terms so far as the pertinent parts thereof are concerned. We are therefore setting out as a note to this opinion* the pertinent sections of the Revenue Act of 1928 (sections 201-203 26 U.S.C.A. §§ 201-203 and notes) and Regulations 74 pertaining thereto.
The questions presented arise by reason of the disallowance by the Board of deductions claimed by the petitioner as interest on indebtedness under paragraph 8 of subsection (a) of section 203 of the statute referred to (26 U.S.C.A. § 203 note). The points in controversy fall conveniently into categories which relate to the policies issued by the petitioner and options thereunder.
As to the Two Policies of Insurance, Known Respectively as "Ordinary Life Trust Certificate or Instalment Policy" and "Ordinary Life Policy."
The first policy, for our consideration, is one designated by the petitioner as an "Ordinary Life Trust Certificate or Instalment Policy," which we will refer to hereafter as the Trust Certificate policy. It provides for payment of the sum of $24,000 in 240 equal monthly instalments, "the first instalment-certain to be paid upon the receipt" of proof of the death of the insured. The policy contains provisions to the effect that the beneficiary may commute the sums due in instalments by a lump sum payment with the permission of the insured, and, if such permission has been given, the total commuted value of the policy will be $18,380.
Section 1 of the policy, which is entitled "Participation — Dividends of Surplus," provides:
Section 7 of the policy, which is entitled "Instalments," provides:
Section 3 provides:
The Board found as a fact, and its finding is supported by sufficient evidence, that: "The fixed monthly instalment of $100.00 provided for in the foregoing policy, insofar as actuarial calculation is concerned, includes a partial payment of the original lump sum equivalent; that is, the original lump sum at the time of death or maturity of the policy, and the remainder thereof is the equivalent of a guaranteed rate of 3 per cent."
If this finding be stated in a slightly different fashion, it is that the sum of $24,000 to be paid in 240 equal monthly instalments does in fact represent the $18,300, the "commuted" value of the policy, plus 3 per cent. compounded annually as called for by the policy.
The second type of policy involved herein is designated by the petitioner as an "Ordinary Life Policy." It provides for payment to the beneficiary, upon receipt of proof of death of the insured, of the sum of $100,000. Section 1 of this policy, also entitled "Participation-Dividends of Surplus" is identical in provisions with section 1 of the "Ordinary Life Trust Certificate or Instalment Policy," quoted above. Section 7, entitled "Options for Payment of this Policy as an Income," provides:
Section 3 provides: "The reserve basis of the following table is the American Experience Table of Mortality with interest at 3 per cent. per annum according to the net...
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