69 F.2d 595 | 5th Cir. | 1934
In redetermining the income taxes for 1926 and 1929' of the Wichita State Bank & Trust Company, the Board of Tax Appeals charged to it as income moneys returned to it from the State Depositors’ Guaranty Fund and from the liquidation of failed member banks. The bank complains of that action. A Texas statute, Rev. St. 1925, art. 437 et seq., required each state bank to protect its depositors either by a bond or policy of insurance, or by becoming a contributor to the Depositors’ Guaranty Fund. This taxpayer elected the latter. The fund was to be raised by an annual contribution or assessment based on average deposits until its amount reached $5,000,000. A fourth of each bank’s contribution was paid in cash into the state treasury, and held there as a bailment. Three-fourths was entered on the books of the bank as a deposit to the credit of the State Banking
We are of opinion that the scheme of the statute is in substance to require the banks to insure their depositors. When this is done by a surety bond or policy, the premium paid is an expense of business. When it is done through the Guaranty Fund, there is a sort of mutual insurance on the assessment plan. When a bank, fails the cash assessment made because of the failure is the premium paid for the insurance. Prima facie it is an expense like the bond premium is when that form of insurance is carried. There may be a l'etum, but it will be deferred long beyond the tax year and is wholly uncertain. Taxation being a practical matter, payment of such an assessment may well be treated as a present expense, and any return that may come from it in future years as a windfall or a profit, like a collection on a debt charged off as worthless. As to these special assessments resulting from failures, we affirm the action of the Board.
The contributions to the permanent Guaranty Fund stand otherwise. That fund is not intended to be lost or consumed, but is to stand as a reservoir drawn on to provide prompt payment to depositors, but to be at once replenished by the special assessments. It is analogous to the capital of an insurance company. Each bank owns its pro rata part in it, which it ought ultimately to get back. This bank got back its share by withdrawal from the plan, and it appears that on repeal of the law other banks got back their share. We think the contributions to the $5,000,000 Guaranty Fund, while made annually instead of in a lump sum, were essentially capital investments and ought to be dealt -with as such. This conforms with the regulation made on the subject under the Revenue Act of 1918 and now carried as article 132 of Regulations 74 and 77 under the Revenue Acts of 1928 and 1932. In holding otherwise the Board erred.
For this error the petition for review is granted, and the judgment of the Board is set aside for further proceedings not inconsistent with this opinion.