Regenstein v. Comm'r of Internal Revenue, Docket No. 74912.

• Citation: 35 T.C. 183
• Decision Date: 31 October 1960
• Docket Number: Docket No. 74912.
• Parties: HAROLD L. REGENSTEIN AND STEPHANIE W. REGENSTEIN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: United States Tax Court

35 T.C. 183

HAROLD L. REGENSTEIN AND STEPHANIE W. REGENSTEIN, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 74912.

Tax Court of the United States.

Filed October 31, 1960.

Petitioner and others worked in developing a plan for group life insurance for Federal Government employees, the basic ideas of which were included in the Federal Employees' Group Life Insurance Act of 1954 as passed by Congress. Held, amount paid to petitioner by the Metropolitan Life Insurance Company on behalf of itself and its associated companies for which he sold, assigned, and transferred to these companies all right, title, and interest in and to said plan of and ideas for group life insurance for Federal Government employees and released all claims against these companies arising out of the formulation, presentation, solicitation, sale and/or issuance of the policy of group life insurance by these companies to the United States Civil Service Commissioner, is taxable to petitioner as ordinary income. Michael Kaminsky, Esq., for the petitioners.

Victor H. Frank, Jr., Esq., for the respondent.

SCOTT, Judge:

The respondent determined a deficiency in petitioners' income tax for the taxable year 1954 in the amount of $3,740.61. The only issue for decision is whether the amount of $10,000 received by Harold L. Regenstein in 1954 from the Metropolitan Life Insurance Company is taxable as ordinary income rather than as long-term capital gain.

FINDINGS OF FACT.

The petitioners are husband and wife whose income tax return for the year 1954 was filed with the district director of internal revenue for the Upper Manhattan District of New York.

Harold L. Regenstein, hereinafter referred to as the petitioner, is an insurance agent and consultant whose primary contract is with the Massachusetts Mutual Life Insurance Company. He develops and installs benefit plans and corporate insurance arrangements, and deals in corporate retirement arrangements and other forms of individual and group insurance. He is licensed as an insurance agent in New York State and in several other States. He handles business for insurance companies other than the one with which he has his primary contract and sells any form of insurance contract that is authorized in the States in which he has a license. The major portion of his business is selling insurance contracts of various types to corporations. The petitioner has been in this form of insurance business since 1920.

In the ordinary course of petitioner's business he sells group life insurance. His first work in connection with selling group life insurance is to interest the company he is working with in providing the group insurance for its employees. He then works out a plan of insurance that an insurance company will underwrite. Petitioner presents the plan he has developed for the particular company to a meeting of the officers or board of directors of the company, and he is either successful in making a sale or not. One of the factors discussed with the corporation is the amount of coverage it wants. A common formula for companies is to insure each employee to the extent of 1 year's salary. He may suggest to the company to whom the insurance is being sold the proportion of the cost of the insurance to be paid by it. The insurance company that is issuing the policy makes the rate computations.

In selling ordinary life insurance to a corporation petitioner works with the corporation to fit an insurance plan to the needs of the purchaser's particular business. In selling a personal insurance policy petitioner considers the individual problem of the person proposing to purchase the contract and attempts to coordinate the insurance with the provisions of the individual's will. For the sale of either a group or individual insurance policy petitioner is paid a commission by the insurance company issuing the policy based upon a regular commission scale.

Petitioner maintains an office in which he employs four or five people to do whatever work is necessary in assisting him in preparing plans for group insurance and in the ordinary office work. He has some travel and entertainment expenses in connection with his insurance business.

In 1948 a full-time agent of the Massachusetts Mutual Life Insurance Company by the name of H. Stanley Judd came to petitioner's office and told him that his uncle, John Wesley Clark, had been asked by friends of his in Washington in the Senate and House of Representatives to find someone to determine whether the private insurance companies would be interested in taking over national service life insurance. At Judd's request petitioner went with him to Washington to meet with Clark. Petitioner met with Judd, Clark, and other persons in Washington and discussed the possibility of interesting the private insurance companies in taking over the national service life insurance business. Petitioner stated that in his opinion the private companies would not be interested in doing this but he agreed that he would make an appointment with the Life Insurance Presidents' Association to discuss the problem. After meeting with representatives of the insurance companies, petitioner reported back to the persons with whom he had previously met in Washington that as he had expected the insurance companies were not interested in taking over the national service life insurance business.

Petitioner then suggested to this same group that the Federal Government should provide group life insurance for its employees. The persons to whom petitioner made this suggestion were very interested in the idea, but expressed doubt that the private insurance companies would cooperate in such an undertaking. Later petitioner attempted without success to interest the president and vice president of the Massachusetts Mutual Life Insurance Company in working with him to develop a plan for group life insurance for Federal Government employees. At their suggestion, petitioner talked with Reinhard Hohaus, the chief group actuary of the Metropolitan Life Insurance Company, in an effort to interest him and his company in working on such a plan. Hohaus told petitioner that he did not have the authority himself to proceed to work on this idea but subsequently called petitioner and told him that his superiors had approved of his going ahead with such work. Petitioner met with Hohaus and they proceeded, with the assistance of one or two of the young lawyers and assistant actuaries of the Metropolitan Life Insurance Company, to work on a plan for group life insurance for Federal Government Employees.

When Hohaus and petitioner had developed a plan, they met in Washington with Monroe M. Redden, Member of Congress from the State of North Carolina, and went over their plan with him very thoroughly. it was decided that before any further steps were taken a study should be made to determine the general reaction of the unions in the Federal Government to the plan. Petitioner proceeded to make such a study, and the result thereof showed that the unions were generally favorable to the plan. After making this study, petitioner and Hohaus again presented the matter to Redden, together with the result of the study, and Redden thereafter offered a bill in Congress proposing a form of group life insurance for Federal Government employees. This bill was never acted upon by Congress.

Petitioner continued to have meetings with Redden. He also met with Hale Boggs, Member of Congress from the State of Louisiana, and later he and Hohaus had meetings with Boggs. Petitioner attended a meeting in Washington with representatives of 35 of the biggest life insurance companies and discussed with them the willingness of the private life insurance companies to cooperate with the Federal Government by underwriting group life insurance for all employees of the Federal Government. The consensus of the meeting was that the private life insurance companies would be pleased to cooperate with the Government on such a group life insurance plan. After this meeting, petitioner made certain revisions in the plan in conformance with the discussions that had taken place at the meeting. The major revision consisted of setting up eight groups of life insurance companies who were in the group-underwriting business with each group headed by one of the large companies. It had been petitioner's idea to have one company manage the entire plan because he felt that would be a much more economical operation, but no one company was willing to take the responsibility as the managing company. Petitioner sent a copy of the modified plan to Redden in Washington. Redden presented this plan in a bill to Congress, but the bill did not pass.

Petitioner kept sending copies of the plan to officials of the Federal Government during the administration of President Truman. After President Eisenhower was elected, petitioner sent a copy of the plan to him with a letter and received an acknowledgment thereof. When petitioner learned that Elliott Caplan had been appointed by President Truman to head a commission making a study of the various pension operations in the Federal Government, he arranged to meet Caplan and told him about the plan for group life insurance for employees of the Federal Government. He sent Caplan a copy of the plan. Thereafter, petitioner had a number of meetings with Caplan who continued in the same position as an appointee of President Eisenhower. Petitioner continued to have meetings with Caplan to discuss the group life insurance plan through the fall of 1953.

During the entire time petitioner was working on the plan for group life insurance for Federal Government employees he did some work in his office and the secretaries in his office did typing on the plan, modifications thereof, and correspondence in connection therewith. Petitioner had some travel expenses in connection with his work on this plan but the greater portion of petition...