HELVERING, Com'r of Internal Revenue, v. LE GIERSE et al.
|
Code Sec(s): |
|
|
Court Name: |
|
|
Docket No.: |
No. 237. |
|
Date Argued: |
|
|
Date Decided: |
|
|
Disposition: |
|
|
Cites: |
25 AFTR
1181, 312 |
Messrs. Robert H. Jackson, Atty. Gen., and Samuel O. Clark,
Jr., Asst. Atty. Gen., for petitioner.
Mr.
Frederick O. McKenzie, of
On
Writ of Certiorari to the
Petition by Guy T. Helvering, Commissioner of Internal Revenue, to review a
decision of the United States Board of Tax Appeals, 39 B.T.A. 1134, which determined that there was no
deficiency in the estate tax of Edyth Le Gierse and another, as executors of the estate of Cecil Le Gierse, deceased. To review a judgment of the Circuit Court
of Appeals, 110 F.2d 734, which affirmed the decision of the
United States Board of Tax Appeals, the Commissioner of Internal Revenue brings
certiorari.
Judge: Mr. Justice MURPHY delivered the
opinion of the Court.
Less than a month before
her death in 1936, decedent, at the age of 80 executed two contracts with the
Connecticut General Life Insurance Co. One was an annuity contract in standard
form entitling decedent to annual payments of $589.80 as long as she lived. The
consideration stated for this contract was $4,179. The other contract was
called a "Single Premium Life Policy—Non Participating" and provided
for a payment of $25,000 to decedent's daughter, respondent Le Gierse, at decedent's death. The premium specified was
$22,946. Decedent paid the total consideration, $27,125, at the time the
contracts were executed. She was not required to pass a physical examination or
to answer the questions a woman applicant normally must answer.
The "insurance"
policy would not have been issued without the annuity contract, but in all
formal respects the two were treated as distinct transactions. Neither contract
referred to the other. Independent applications were filed for each. Neither
premium was computed with reference to the other. Premium payments were
reported separately and entered in different accounts on the company's books.
Separate reserves were maintained for insurance and annuities. Each contract
was in standard form. The "insurance" policy contained the usual
provisions for surrender, assignment, optional modes of settlement, etc.
Upon decedent's death, the
face value of the "insurance" contract became payable to respondent
Le Gierse, the beneficiary. Thereafter, a federal estate
tax return was filed which excluded from decedent's gross estate the proceeds
of the "insurance" policy. The Commissioner notified respondents
Bankers Trust Co. and Le Gierse, as executors of
decedent's estate, that he proposed to include the proceeds of this policy in
the gross estate and to assess a deficiency. Suit in the Board of Tax Appeals
followed, and the Commissioner's action was reversed. 39 B.T.A. 1134. The Circuit
Court of Appeals affirmed. 2 Cir., 110 F.2d 734. We brought the case here because of
conflict with Commissioner v. Keller's Estate, 3 Cir., 113 F.2d 833, and Helvering
v. Tyler, 8 Cir., 111 F.2d 422, 311 U.S. 625, 61 S.Ct.
32, 85 L.Ed. —.
The ultimate question is
whether the "insurance" proceeds may be included in decedent's gross
estate.
Section
302 of the Revenue Act of 1926, 44 Stat. 9, 70, as amended, 47 Stat. 169, 279,
48 Stat. 680, 752, 26 U.S.C.A.Int.Rev. Code, § 811, provides: "The
value of the gross estate of the decedent shall be determined by including the
value at the time of his death of all property, real or personal, tangible or
intangible *** (g) To the extent of the amount receivable by the executor as
insurance under policies taken out by the decedent upon his own life; and to
the extent of the excess over $40,000 of the amount receivable by all other
beneficiaries as insurance under policies taken out by the decedent upon his
own life." Thus the basic question is whether the amounts received here
are amounts "receivable as insurance" within the meaning of § 302(g).
Conventional aids to
construction are of little assistance here. Section 302(g) first appeared in
identical language in the Revenue Act of 1918 as § 402(f).
40 Stat. 1057, 1098. It has never been changed. 1
None of the acts had ever defined "insurance". Treasury Regulations,
interpreting the original provision, stated simply: "The term 'insurance'
refers to life insurance of every description, including death benefits paid by
fraternal beneficial societies, operating under the lodge system."
Treasury [pg. 1184] Regulations No. 37, 1921 edition, p. 23.
This statement has never been amplified. 2
The committee report accompanying the Revenue Act of 1918 merely noted that the
provision taxing insurance receivable by the executor clarified existing law,
and that the provision taxing insurance in excess of $40,000 receivable by
specific beneficiaries was inserted to prevent tax evasion. House Report No.
767, 65th Cong., 2d Sess., p. 22. 3
Subsequent committee reports do not mention § 302(g). Transcripts of committee
hearings in 1918 and since are equally uninformative. 4
[1] Necessarily, then, the language and
the apparent purpose of § 302(g) are virtually the only bases for determining
what Congress intended to bring within the scope of the phrase "receivable
as insurance". In fact, in using the term "insurance" Congress
has identified the characteristic that determines what transactions are
entitled to the partial exemption of § 302(g).
[2-4] We think the fair import of subsection
(g) is that the amounts must be received as the result of a transaction which
involved an actual "insurance risk" at the time the transaction was
executed. Historically and commonly insurance involves risk-shifting and
risk-distributing. That life insurance is desirable from an economic and social
standpoint as a device to shift and distribute risk of loss from premature
death is unquestionable. That these elements of risk-shifting and
risk-distributing are essential to a life insurance contract is agreed by
courts and commentators. See for example: Ritter v. Mutual Life Ins. Co., 169
[5] Analysis of the apparent purpose of
the partial exemption granted in § 302(g) strengthens the assumption that
Congress used the word "insurance" in its commonly accepted sense.
Implicit in this provision is acknowledgement of the fact that usually
insurance payable to specific beneficiaries is designed to shift to a group of
individuals the risk of premature death of the one upon whom the beneficiaries
are dependent for support. Indeed, the pith of the exemption is particular
protection of contracts and their proceeds intended to guard against just such
a risk. See Commissioner v. Keller, supra; United States Trust Co. v.
We cannot find such an
insurance risk in the contracts between decedent and the insurance company.
[6] The two contracts must be considered
together. To say they are distinct transactions is to ignore actuality, for it
is conceded on all sides and was found as a fact by the Board of Tax Appeals
that the "insurance" policy would not have been issued without the
annuity contract. Failure, even studious failure, in one contract to refer to
the other cannot be controlling. Moreover, authority for such consideration is
not wanting, however unrealistic the distinction between form and substance may
be. Commissioner v. Keller, supra; Helvering
v.
[7, 8] Considered together, the contracts
wholly fail to spell out any element of insurance risk. It is true that the
"insurance" contract looks like an insurance policy, contains all the
usual provisions of one, and could have been assigned or surrendered without
the annuity. Certainly the mere presence of the customary provisions does not
create risk, and the fact that the policy could have been assigned is
immaterial since no matter who held the policy and the annuity, the two
contracts, relating to the life of the one to whom they were originally issued,
still counteracted each other. It may well be true that if enough people of
decedent's age wanted such a policy it would be issued without the annuity, or that if the instant policy had been surrendered
a risk would have arisen. In either event the essential relation between the
two parties would be different from what it is here. The fact remains that
annuity and insurance are opposites; in this combination the one neutralizes
the risk customarily inherent in the other. From the company's viewpoint,
insurance looks to longevity, annuity to transiency.
See Commissioner v. Keller, supra; Helvering v.
[9, 10] Here the total consideration was
prepaid and exceeded the face value of the "insurance" policy. The
excess financed loading and other incidental charges. Any risk that the
prepayment would earn less than the amount paid to respondent as an annuity was
an investment risk similar to the risk assumed by a bank; it was not an
insurance risk as explained above. It follows that the sums payable to a
specific beneficiary here are not within the scope of § 302(g). The only
remaining question is whether they are taxable.
[11] We hold that they are taxable under
§ 302(c) of the Revenue Act of 1926, as amended, 26 U.S.C.A.Int.Rev.Code,
§ 811(c), as a transfer to take effect in possession or enjoyment at or after
death. See Helvering v.
The judgment of the Circuit
Court of Appeals is reversed.
The CHIEF JUSTICE and Mr.
Justice ROBERTS think the judgment should be affirmed for the reasons stated in
the opinion of the Circuit Court of Appeals.
Act of 1921; 42 Stat. 227, 279, § 402(f);
Act of 1924; 43 Stat. 253, 305, § 302(g), 26 U.S.C.A.Int.Rev.Acts,
page 68; Act of 1926; 44 Stat. 9, 71, § 302(g), 26 U.S.C.A. Int.Rev.Acts,
page 231; Code of 1939: 53 Stat. 1, 122, 26 U.S.C.A. Int.Rev.Code.
§ 811(g).
Regulations No.
63, p. 26; Regulations No. 68, p. 31; Regulation No. 70, 1926 edition, p. 30;
Regulations No. 70, 1929 edition, p. 33; Regulations No. 80, p. 62.
" *** [Insurance payable to specific beneficiaries
does] not fall within the existing provisions defining gross estate. It has
been brought to the attention of the committee that wealthy persons have and
now anticipate resorting to this method of defeating the estate tax. Agents of
insurance companies have openly urged persons of wealth to take out additional
insurance payable to specific beneficiaries for the reason that such insurance
would not be included in the gross estate. A liberal exemption of $40,000 has
been included and it seems not unreasonable to require the inclusion of amounts
in excess of this sum.
The same comment appears in
Senate Report No. 617, 65th Cong., 3d Sess., p. 42.
The curious
consistency and inadequacy of section 302(g) have not escaped notice. See Paul
Life Insurance and The Federal Estate Tax, 52 Har.L.Rev. 1037; Paul, Studies in Federal Taxation, 3d
Series, p. 351; United States Trust Co. v. Sears, D.C., 29 F.Supp. 643, 650.
Legg v.
© Copyright 2003 RIA. All rights reserved.