1932 BTA LEXIS 1171 | B.T.A. | 1932
Lead Opinion
OPINION.
Petitioner contests a deficiency in income taxes for the calendar year 1926 of $944.05. The sole issue involved is whether the excess of premiums paid on life insurance policies carried by a corporation on its officers (who were also stockholders) over the amount received from sale of the policies in 1926 is deductible from income as a loss sustained by the corporation.
Petitioner is a corporation, having its principal office at Tenth Avenue and 36th Street, New York City.
The parties, by counsel, have stipulated the facts as follows:
The petitioner took out insurance policies on the following officers in the following years and for the amounts stated:
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The said officers were stockholders of the petitioner, and the said petitioner was named as the beneficiary under the policies to protect it against loss in the event of their death.
*1211 Premiums were paid by the petitioner during the years set forth below in the amounts stated:
1917. $280.00 1923_ $1, 831.40
1918. 280. 00 1924_ 1, 727.43
1919. 240. 00 1925_ 2, 301. 60
1920. 280. 00 1926_ 305. 59
1921. 1, 851.40
1922. 1, 851. 40 Total_$10, 948. 82
These premiums were charged to expense on the petitioner’s boohs, and were not deducted in its federal income tax returns for the years in which paid.
As of January 1, 1926, a sum of $3,650.55 was carried on petitioner’s books as “ cash value life insurance,” which represented the then cash surrender value of the above listed policies.
On June 30, 1926, the petitioner sold the life insurance policies carried on its several officers to these officers for an aggregate sum of $3,825.36, which was the cash surrender value of the policies at that time.
The excess of the premiums paid over the amount received upon sale of the policies, $7,128.56, petitioner claimed as a deduction from income for 1926. Respondent disallowed that deduction and from that action arises the deficiency herein.
It is petitioner’s contention that the item of $7,123.56 is deductible either as a loss incurred in trade or business under section 214 (a) (4) of the Revenue Act of 1926, or as a loss sustained upon sale of property under section 204 (a) of the same act. Without passing upon petitioner’s right to the deduction upon either ground, we sustain respondent for the reason that petitioner has failed to prove any loss. It is clear that its loss, if any, must be measured by the difference between the cost of the property sold and the selling price (section 204 (a), Revenue Act of 1926). Petitioner acquired the property which it later sold to the insured stockholders through the payment of premiums, but the total premiums paid did not represent the cost of the capital asset, as petitioner contends. To so hold would be to disregard the element of insurance protection in the period prior to the sale, the benefit of which accrued to petitioner.
In Stadard Brewing Co., 6 B. T. A. 980, we considered this identical issue arising upon similar facts (except that there the policies were surrendered while here they were sold at cash surrender value) and that decision is determinative of the case at bar. We there said:
To the extent that the premiums paid by the petitioner created in it a right to a surrender value, they constituted a capital investment. To the extent they exceeded the surrender value, they constituted payment for earned insurance and were current expenses. Appeal of E. A. Armstrong, 1 B. T. A. 296. The surrender value of the policy was the measure of the investment and upon the surrender there was no capital lost.
For that reason we respectfully disagree with the decision in Forbes Lithograph Mfg. Co. v. White, 42 Fed. (2d) 287, cited by petitioner in support of his position, where, under facts similar to the case at bar (although there the policies were surrendered) plaintiff was allowed as a deductible loss the excess of the premiums paid over the amount received upon termination of its ownership of the policies. The learned judge deemed it unnecessary to consider the exact nature of premium payments on policies issued and held under the circumstances set out because, he says:
In Lucas v. Alexander, 279 U. S. 573, the principle is adopted of setting up such an account by taking the total amount paid in on one side, and the total amount received when the transaction is closed out on the other side.
In our opinion no such rule can be deduced from the Supreme Court’s decision in the Lucas case and certainly, for the reasons
In this proceeding the only proof we have is that a part of the premiums paid purchased a capital asset represented by the surrender values of the policies, amounting to $3,815.36. At that amount the policies were sold, so no loss resulted from the sale. So far as this record discloses, the balance of the premiums went for insurance protection, of which petitioner had the benefit, which is not a capital asset, and can not constitute a loss. Cf. Gustave Anderson, 26 B. T. A. 1208.
Judgment will be entered for the respondent.