218 F. 905 | E.D. Pa. | 1914
This case was tried before the court without the intervention of a jury, under the provisions of sections 649 and 700, Revised Statutes (Comp. St. 1913, §§ 1587, 1668). The evidential facts are not in controversy, and the case partakes almost of the nature of a case stated. An excise tax,'under the provisions of the act of Congress of August 5, 1909, was assessed against and paid by the plaintiff. The payment, so far as affects the questions involved, was accompanied by the usual formalities which give •the plaintiff the right to recover in this form of action the amount claimed, if the tax was illegally exacted. All this is conceded by the defendant, and the necessary facts and conclusions of law are found to this end, and there is no need to incorporate them in formal special findings. The question, therefore, resolves itself into one of the liability of the plaintiff to the payment of the tax. The only disputable question is further really narrowed to one of the proper application of the latter part of the-second of the five classes of deductions allowed by the act of Congress to be made from the “gross income” of the plaintiff in order to determine the taxable “net income.” The real question is embraced in the phrase “the net addition, if any, required by law to be made to reserve funds” of insurance companies.
19.09 Reserve .;. $7,796,094 92
Surplus . 2,577,235 60
Net $5,218,859 32
1910 Reserve . $8,327,931 49
Surplus . 3,712,333 93
Net . $4,615,597 56
1911 Reserve . $8,908,377 36
Surplus ...'. 4,202,404 41
Net $4,705,972 95
The real surplus of a corporation is, of course, the difference between the aggregate value of all its assets and the sum of all its liabilities, including capital stock. This difference may be called surplus, undivided profits, contingent fund, or by any other name. In a real and substantial sense, it is a reserve. Broadly speaking, it is not required to be maintained, but may be paid out in dividends, or otherwise distributed among the stockholders. Ordinarily no part of it is embraced in the sum total of liabilities. When, however, something is added to the sum of liabilities which is not owing by the company, this addition then becomes a reserve. It is in this sense that moneys set aside to meet possible liabilities are “reserves,” and if required by law to be thus carried, they are “additions required by law to be made to reserve funds.”
Let us pause here to bring into the discussion the act of Congress. It was clearly the purpose of Congress to impose this excise tax, based upon the net income of corporations received during the year. To ascertain this, the gross income is taken, reduced only by certain specified deductions. The general purpose of the act is to make the stateriient of income a statement of cash receipts and disbursements. Actual payment is made the test of deductions. It was recognized, however, that in certain instances the money might be as effectually withdrawn from available income as if actually paid away. The allowance of the deduction embraced in the phrase already quoted is one. This company did add to its reserve by including in its liabilities unpaid losses and claims and unearned premiums. The sums thus added have been stipulated,- and are-found as stipulated. The losses for 1911 in fact ex
There is no need for special findings of fact. These general findings are sufficient.
The conclusions of law reached are as follows:
Conclusions of Law.
1. The income sum of $8,303.41 on which an excise tax was assessed and collected for the year 1910 was not taxable as income.
2. The income sum of $8,638.83 on which the tax was assessed and paid for the year 1911 was not taxable as income.
3. The sum of $151,750 was properly not deducted from the taxable income for the year Í910.
4. The sum of $113,000 was properly not deducted • from-taxable income for the year 1911.
5. The plaintiff is entitled to judgment for the sum of $192.73, made up as follows:
1910 tax payment. $ 83 03
Interest from August 22, 1912. 11 43
1911 tax payment. 86 38
Interest from August 22, 1912. 11 89
Amount of judgment. $192 73
- — together with costs of suit.
This judgment is accordingly entered in favor of the plaintiff and against defendant for $192.73, with costs of suit.