United States v. Sullivan
| Decision Date | 02 February 1962 |
| Docket Number | Civ. A. No. 17402,17747. |
| Citation | 203 F. Supp. 1 |
| Parties | UNITED STATES of America, Plaintiff, v. Cornelius W. SULLIVAN, alias Neil Sullivan, et al., Defendants. UNITED STATES of America, Plaintiff, v. William L. KANN, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Joseph S. Ammerman, U. S. Atty., Pittsburgh, Pa., for United States of America.
John M. Reed, Reed & Egler, Pittsburgh, Pa., for Aetna Life Ins. Co.
Ferdinand T. Weil, Weil, Vatz & Weil, Pittsburgh, Pa., for William L. Kann, Estate of Stella H. Kann, deceased, William L. Kann, Jr., Elise K. Goldman and Betty K. Wilson.
Alexander Black, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., for Lincoln National Life Ins. Co.; New England Mut. Life Ins. Co.; New York Life Ins. Co.; Metropolitan Life Ins. Co.
Gilbert J. Helwig, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for Northwestern Mut. Life Ins. Co.; Prudential
Ins. Co. of America; Manufacturers Life Ins. Co.; Penn Mut. Life Ins. Co.
Thomas Lewis Jones, Pittsburgh, Pa., for Equitable Life Assurance Society of United States; General American Life Ins. Co.
R. J. Cleary, Pittsburgh, Pa., for Pittsburgh Crushed Steel Co.
John A. McCann, Pittsburgh, Pa., for Cornelius W. Sullivan and Mary E. Sullivan.
K. Martin Worthy, Hamel, Morgan, Park & Saunders, Washington, D. C., for Life Ins. Association of America, amicus curiae.
These two actions were instituted by the Government against certain taxpayers to foreclose liens for unpaid Federal income taxes assessed against the defendant taxpayers. The Government seeks to enforce such liens by collecting the cash value of each of the life insurance policies issued by the defendant companies on the lives of the taxpayers.
These actions having been tried by the Court without a jury, the Court makes the following findings of fact and conclusions of law.
1. This action was authorized and sanctioned by the Commissioner of Internal Revenue, a delegate of the Secretary of the Treasury, and was brought under the direction of the Attorney General of the United States.
2. On April 30, 1951, the Commissioner of Internal Revenue made a jeopardy assessment against defendants William L. Kann and Stella H. Kann for income taxes for the years 1936 to 1941, inclusive, in the amount of $233,196.88, with fraud penalties for said years totaling $155,999.30 and accrued interest to the date of assessment amounting to $117,048.69, the total amount assessed being $506,244.87.
3. On November 2, 1949, the said William L. Kann and Stella H. Kann filed a petition with the United States Tax Court for a review of said deficiencies. The decision of the Tax Court on said petition is reported in the case of Kann v. Commissioner, 18 T.C. 1032. The decision of the Tax Court was affirmed on appeal: 210 F.2d 247 (3rd Cir. 1953), cert. den. 347 U.S. 967, 74 S.Ct. 778, 98 L.Ed. 1109 (1954).
4. On May 5, 1951, the District Director of Internal Revenue filed notice of tax lien in the sum of $497,217.70 covering the above-mentioned jeopardy assessments of income taxes, penalties and interest for the years 1936 to 1941, inclusive, with the Prothonotary of Allegheny County, Pennsylvania, at Pittsburgh, Pennsylvania.
5. Defendant Stella H. Kann, wife of defendant William L. Kann, died on March 9, 1961, leaving a will which was duly admitted to probate by the Register of Wills of Allegheny County, Pennsylvania, and letters testamentary thereon were granted to said William L. Kann, as executor, and he now is qualified and is acting as such.
6. On July 13, 1961, William L. Kann, individually and as Executor of the Estate of Stella H. Kann, deceased; William L. Kann and Stanley Kann, Trustees; and Pittsburgh Crushed Steel Company, all defendants, and the United States, plaintiff, entered into a "Stipulation Re Settlement" in this case whereby the United States settled its claim for taxes against these particular defendants, and discharged the lien described above against all property and rights to property belonging to these defendants, except to the extent that such lien applied against the cash surrender value of life insurance policies involved in this case in an amount equal to the outstanding loans on such policies as of the date of the entry of this suit (March 24, 1959).
7. On July 13, 1961, William L. Kann, individually and as Executor of the Estate of Stella H. Kann, deceased; William L. Kann and Stanley Kann, Trustees; and Pittsburgh Crushed Steel Company, all defendants, and the United States, plaintiff, entered into a "Stipulation of Dismissal," whereby the parties agreed that this action be dismissed with prejudice, except that the government reserved its right to proceed on its claim against the defendants "in an amount equal to the outstanding loans on said policies as of the date of entry" of this suit (March 24, 1959). By stipulation, the action against Penn Mutual Life Insurance Company and Guaranty Trust Company was dismissed with prejudice.
8. No request for the cash surrender value of the policies involved in this case has ever been received by the insurance company defendants.
9. The following policies were issued by the defendant companies insuring the lives of either William L. Kann or Stella H. Kann:
Company/
Policy Number Date Issued Face Amount
Manufacturers
767 115 June 5, 1939 $50,000
Prudential
6 446 740 Feb. 7, 1929 5,000
8 336 703 Feb. 13, 1934 5,900
8 837 864 Mar. 22, 1935 5,833
9 137 898 Dec. 27, 1935 10,000
New England Mutual
710 395 June 26, 1931 5,000
Reliance (Lincoln)
756 445 Nov. 5, 1937 10,000
Equitable
11 580 248 Dec. 15, 1942 4,000
New York Life
9 379 235 Feb. 20, 1926 5,000
9 441 080 May 5, 1926 5,000
9 679 251 Dec. 10, 1926 1,000
10 012 405 Oct. 14, 1927 4,000
10 026 237 Oct. 27, 1927 5,000
10 449 976 Nov. 28, 1928 5,000
10 449 977 Nov. 28, 1928 25,000
10 918 332 Jan. 4, 1930 5,000
11 293 172 Nov. 19, 1930 10,000
11 293 173 Nov. 19, 1930 5,000
11 397 741 Mar. 19, 1931 5,000
11 504 923 Feb. 1, 1931 5,000
11 584 707 Oct. 3, 1931 10,000
11 584 708 Oct. 3, 1931 5,000
11 589 278 Oct. 8, 1931 10,000
11 954 488 Dec. 27, 1932 10,000
11 957 423 Dec. 29, 1932 5,000
12 311 796 May 10, 1934 1,000
12 328 171 June 1, 1934 2,000
12 323 006 July 16, 1932 2,000
Northwestern
2 392 031 Feb. 6, 1932 50,000
10. Each of the policies was delivered in Pennsylvania and was owned by either William L. Kann or Stella H. Kann.
11. Some of the policies had from time to time, both prior and subsequent to the tax assessment herein and filing of notice of tax lien, been assigned to various financial institutions, not parties to this action, as collateral security to secure loans made by said financial institutions to either William L. Kann or Stella H. Kann. All such assignments were released not later than December 1955.
12. Each of the policies was of the level premium type, wherein the amount of the premium exceeded the actuarially predicted mortality expense of the companies in the early years of the policy, being designed to create certain reserve or non-forfeiture values in each of the policies
13. Each of the policies contains a provision for the use of such reserve or non-forfeiture values by the owner prior to the death of the insured for policy loans. Such provisions are substantially similar to that contained in the policies issued by New York Life:
14. Each of the policies issued by Prudential, Manufacturers, New England and Reliance (Lincoln) contains a provision for the use of such reserve or non-forfeiture values for premium loans. Such provisions are substantially similar to that contained in the policy issued by...
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