Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1913-12-08
MUTUAL BENEFIT
LIFE FIGHTS TAX
United States May Be Forced
to Refund Insurance
Levy.
CASE HINGES ON USE OF
THE WORD DIVIDEND"
Million and a Half Dollars IN
volve d-Government Defeat
ed in Lower Court.

VI WASHINGTON, Dec. S-A million
nd q half dollars of taxes may have
o be refunded to insurance compa-
ies a the result of a legal conteIl-
ion i'll which John w. Davis, solic-
sor-general, filed brief in the Su-
RENE sCourt Saturday Moreover, a
,oint CT the new tariff law is in
elved.
Mr.. u aviss brief was in support of
patitis n for a writ of certiorari in
he UnA.ed States Circuit Court of
lpnRa1s for the Third Circuit to re-
lew d j Judgment by that court adj
aerse 10 be government in an action
" DR.. 10 srman c. H. Herold, collec-
Or OF int rna1 revenue, to enforce the
affection of the corporation tax
tgainst tn e Mutual Benefit Life Ia
iurance ca mpany, Newark, N. j.
The case involves the construction
# the word dividends" in paragraph
of section 38 of the corporation tex
let This paragraph permits de-
luction from gross income of "insur-
ince compaI lies, the sums other than
dividends, paid within, the year on
Is policy and annuity contracts" The
vital words are other than div1-
lends
The Insurance company follows n
somncn rule of such organizations of
making q rel.urn of dividends" 10
bolicyholders, giving them an option
10 take the dividend in cash or have
it applied in the reduction of the
premium on the policy to increase the
policy is to run.
Judge CroHs's Ruling.
Judge Cr,Sss in the District Court
Iaal knA aha 40
dividend was applied in any oth=r
way than by being returned in cash
to the policyhe1der iii was not true
dividend within the meaning of the
language of the corporation tax act
He reasoned that since the company
never received it or paid it out there
fore 1t gould be deducted from the
return made to the collector.
The Court of Appeals adopted this
view. 1.-THE government comedies in
Its lfief that if the lower court is
Sustained the internal revenue bu-
reAn will have to refund to the In
<snrance companies $1,i0O,00O of such
taxes that have been already col
lected
Even more interesting than the ret
roactive effect of the cburt's decision
in the matter is the effect which the
solicitor general declares 1t will have
in the construction of the tariff act
passed this year. After pointing out
that the same language occurs in the
Income tax feature of the law "as
to insurance companies generally, and
even as to life insurance companies
Solicit or General Davis says:
TT Is important for a proper con-
struction of the language used to
have an authoritative decision as to
the proper scope of the word dividend
when applied to insurance companies
Ia taxing legislation.
ut Is Insisted for the government
that Congress must have used the
term. dividends in the same sense
that the companies term the sums
they refuse to return for taxes in
these cases as dividends whether APP
piled in the reduction of the stipu-
lated premium payment or not.
"Since the amount of these sums is
entirely dependent on the manage
ment of the companies business and
+ the fortune attending their affairs 1t
Is a true profit, and when segregated
and declared it is a true dividend
which thereupon becomes the prop
erty of the policyhDlder and subject
70 his disposition"
Called Double Taxation.
In the brief filed for the insurance
company by John o. II. Pitney and
John r, Hardin it is contended that
the government takes the wrong view
Of the effect which the courts de-
cision will have on the administra-
ton of the tariff act of this year,
( and that If the governments conten-
ton is sustained it will amount to
double taxation
The company's attorneys insist that
the .stipulated policy premium lis in
reality an advance deposit by the
member to secure payment of the
eest Of Insurance of the ensuing year,
his prorata share of the losses and
expenses of all the members for the
year.
IF at the end of the year this de-
posit is found to have been excessive
the excess will stand to his credit,
and on payment of the difference be-
tween this excess and the stipulated
premium his full stipulated deposit is
restored for another year, and so