The sun., 1913-12-07
US, FIGHTS REFUND
OF INSURANCE TAX
Case Of Mutual Benefit Life Of
Newark Goes TO ST.
preme Court.
TURNS ON WORD DIVIDEND
Government Lost in Circuit
COurt-MilliOm and Half
Involved.

WASH ISGToN. Dec "a million and
half dollars of taxes may have To be re-
funded TO insurance companies as the re-
suit of II legal contention in which john
W. Davis. Solicitor-General. filed BRIEF
In the Supreme Court to-day. Moreover.
point Of the new tariff law Is involved.
Mr.. Davis's brief was in support of a
petition for a writ of Cer,iorari in the
United States Circuit Court OF Appeals
for the Third Circuit to review judg-
ment by that court adverse to the Gov
ernment in an action by Herman Herold,
Collector of Internal Revenue, 10 enforce
the collection of the corporation tax
against the Mutual Benefit I.ife Insurance
Company. Newark. y. J.
The case involves the construction OF
the word dividends" in paragraph . of
section 3S Of the corporation tax act.
This paragraph permits IA deduction from
gross income of insurance companies,
the sums other than dividends, paid within
the year on its policy and annuity con-
tracts" The vital words are other than
dividends
The insurance company follows COM
mon rule Of such organizations Of making
n return Of dividends to policyholders,
giving them an option to take the divi
dend In cash or have IL applied in the
reduction OF the premium on the policy
to increase the amount or TO diminish The
time the policy is to run
Judge Cross in the District Court for
New Jersey held that when the dividend
was applied in any other way than by
being returned In cash to the policy yholder
II was not true dividend within the
meaning OF the language of the corpora
=
company never received IL or paid IL out
therefore II could be deducted from the
return made to the collector.
May Have to Refund sI.SOO.OOO.
The Court ot Appeals adopted this view
The Government comedies IN its brief that
II the lower cour, IL sustained the In
ternal Revenue Bureau will have to refund
to the insurance companies 81. 5O0.oO0 Of
such taxes that have been already col
lected
Even more interesting than the retro
active effect OF the courts decision IN the
matter IL the effect which the Solicitor
General declares IL will have In the con
struction OF the tariff a., 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 a. to NJ. insurance
4,
1T II important for a proper construc-
ton OF the anguag" used tn htyo an al-
thoritative decision "a 70 the proper scope
OF the term dividend when arrl.ed 20
insurance companies IN taxing l.-.@latIon.
1T Is insisted for the Government iha,
Congress must have used the term dlvi-
dends' In the same sense the insurance
companies use Il. and that the companies
term the sums they refuse "a return for
"A a fhesa I.' Ia.
applied in the reduction of the stipulated
premium payment or not,
Since the amount of these sums ~ en-
tirely dependent on the management OF
the companies business and thu FORUM,
attending their affairs II is a trI" profit
and when segregated and declared II j.
, true dividend which ,hereupon he
comes the property OF the poucyholder
and subject to his disposition"
Say II VIII he Double Taxation.
In the bre! filed for the Insurance com
pany by John g. pitn-y and John !.
Hardin it is contended that the Govern
nlent takes the wrong view Of the effect
which the courts decision viii have on
the administration of the tarif act Of
this year and that If the Governments
contention Is sustained IL will amount
| to double taxation.
The company's attorneys insist that the
stipulated policy premium is I'm realty
an advance deposit hy the member to
secure payment OF the cost Of iuSura loe
OF the ensuing year, hiS pro rata sNare
OF the losses and expenses OF all ia.
| members for the year
IF at the end of The year this deposit
IL found to have been excessive the ex-
! cess still stands to his credit and ON pay
| ment OF the diferenc" between this .x-
cess and the stipulated premium his fu'l
stipulated deposit is restored for another
year. and so on