Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1913-09-05
INSURANCE MEN
| GET HEAVY JOLT
Senate Democrats IL Caucus
Strike Out Certain Mutual
Co. Income Exemptions
stsr Bureau,
Metropolitan national Bank Bldg,
WASHINGTON, Sept.

WASHINGTON, sept. 3.
Insurance companies got a jolt to-
DAY when the Senate Democratic
caucus decided to strike out of the
tariff bill the section exempting parts
of the income of mutual companies
from taxation.
On the plea of the big life insurance
companies. the Senate committee
agreed to an amendment of the bill
early in the session providing that so
much of the profits of the companies
as were returned to the policy-holders
should be exempt from the income
tax.
1t was urged by the insurance COM
panies that by taxing this income in
| the hands of the companies the earn
I ings of the widows and orphans were
reduced unjustly and unfairly.
This argument prevailed at the time
and the exemption clause in the bill
was made to leave out the money re-
turned to policyholders in the form of
dividends,
The announcement today that the
caucus had decided to strike out this
exemption was a surprise. H. B. W.
According to the opinion of several
| evxperts on insurance interviewed by
an Evening Star representative, the
striking out of the section will have
| little effect on the meaning of the
tariff bill because the insurance COM
| panies are protected by the legal de-
cisions of United States Judges. II
| is thought that a substitute clause
will be inserted to cover the provi-
! sions contained in the section stricken
out.
Mr.. E. E. Rhodes. vice-president
of the Mutual Benefit Life Insur-
ance Company, made the following
statement today:
"The provision was inserted by the
finance committee of the Senate. The
purpose of the House so far as life
! insurance companies are concerned
was to re-enect the present corpora
| ton tax law Under a decision OF
the United States Circuit Court OF
Appeals of the Third circuit it was
held that the present corporation tax
act did not tax as income the divi-
dends of mutual life insurance COM
panies applied in reduction of the
current yearly premium
Under the corporation tax act the
| commissioner of internal revenue re-
vised the returns of the net income
made by the Mutual Benefit Life II
surance Companies and levied an ad-
| ditional assessment based upon the
So called dividends allowed by lht
company in reduction of the pr7ln-
iums named in its policies of insur-
| ance.
The company paid the additional
tax under protest and brought suit
in the United States District Court in
1912 for its recovery. The case was
tried by Federal Judge Joseph Cross
who rendered a decision in favor c1
the company.
"The case was carried by the gov
ernment to the United States Circuit
| Court of Appeals, which affirmed the
decision of the District Court
These so-called dividends arise
! from the fact that the premiums
written in the policies of mutual life
insurance companies are larger thar
are ordinarily required. This is done
because mutual companies have nc
capital stock, and the premiums must
be made large enough to cover al
possible contingencies.
LAS the companies experience de
monstrates what sum is actually re-
| uuired. the premiums are reduced ac-
cordingly from year to year and only
/ the reduced sum is collected from the
policyholders. who thus receive theil
/ insurance at its actual cost.
THE difference between the contrac1
premiums and the reduced premium:
actually collected is known as tbs
| dividend"
! The section stricken out by the Sen
ate caucus is as follows
THAT mutual life insurance com
panies shall not be required to re
| turn as a part of their income any
portion of premium deposits actually
returned to their policyholders within
the year for which the income tas
return is made; nor any portion ac'
tually credited to the policyholders by
being applied as deuction from ths
amount of the premium otherwise
due TO the company within the yeal
far which the income TAX is made.