1939 BTA LEXIS 1003 | B.T.A. | 1939
Lead Opinion
OPINION.
The Commissioner determined a deficiency of $2,178.74 in petitioner’s income tax for 1934, He treated as ordinary income and refused to recognize as capital gain the gain from the surrender of a combined life insurance and annuity contract. The facts are not in dispute and have been stipulated.
The amount received by you from the surrender of a combined annuity and life insurance contract is not considered a sale or exchange within the meaning of section 117 of the Revenue Act of 1934 and has, therefore, been eliminated from capital net gain and the full amount of the gain included as ordinary income in accordance with General Counsel Memorandum 18233, Internal Revenue Bulletin XVI, May 24, 1937, No. 21, page 5, which holds that Income Tax Ruling 2261, Cumulative Bulletin XI-2, year 1932, page 39, is applicable to the 1934 Act as well as to the 1932 Act.
Thus the essential issue is whether the voluntary surrender of the policy for its face amount is a sale or exchange. There would seem to be little room for debate if the words alone were to be applied in their ordinary meaning. For the realization of the gains inherent in a contract by reason of its performance is not a sale or exchange, either in common parlance or in the language of the law, United States v. Fairbanks, 95 Fed. (2d) 794; petition for rehearing and for certiorari granted Jan. 16, 1939; Felin v. Kyle, 102 Fed. (2d) 349. And so it was held in 1936, under the Kevenue Act of 1928, as to the surrender of an exactly similar policy, George A. Helbnan, 33 B. T. A. 901.
The petitioner argues, in attempting to escape that case, that it was built upon an analogy of the surrender of an insurance policy and the redemption of a bond; and that since, by subdivision (f) of section 117 of the Kevenue Act of 1934
Decision will he entered wider Rule 50.
(f) Remehmen® os’ Bonds, Etc. — For the purposes of this title, amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.