Case Name: UNITED STATES of America, Appellant, v. Gordon P. HAYNES and Essie M. Haynes, Appellees
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1956-04-20
Citations: 233 F.2d 413
Docket Number: No. 15655
Parties: UNITED STATES of America, Appellant, v. Gordon P. HAYNES and Essie M. Haynes, Appellees.
Judges: Before BORAH, TUTTLE and BROWN, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 233
Pages: 413–426

Head Matter:
UNITED STATES of America, Appellant, v. Gordon P. HAYNES and Essie M. Haynes, Appellees.
No. 15655.
United States Court of Appeals Fifth Circuit.
April 20, 1956.
Harlan Pomeroy,- Trial Atty., Dept, of Justice, Washington, D. C., James W. Dorsey, U. S. Atty., Slaton Clemmons, Asst. U. S. Atty., Atlanta; Ga., Charles I-C. Rice, Asst.. Atty. Gen., Charles D. Read, Jr., Asst. U. S. Attys., Atlanta, Ga., H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson, Attys., Dept, of Justice, Washington, D. C., for appellant.
John H. Hudson, William Ralph Hudson, Atlanta, Ga., Thomas E. Berry, Houston, Tex., for appellees.
Before BORAH, TUTTLE and BROWN, Circuit Judges.

Opinion:
TUTTLE, Circuit Judge.
This appeal from a judgment of the district court in favor of the taxpayer raises the question whether payments made by his employer during sick leave, under the employer's disability benefit plan, are exempt from taxation under •the provision of Section 22(b) (5) of the Internal Revenue Code of 1939, which exempts "amounts received through health insurance as -compensation for sickness".
Taxes are a creature of statute. It is thus the duty of the Court to look to the ¡statute and if the incidence which makes the tax applicable exists, then the tax follows perforce; but if it does not exist, then it is not within the province of the Commissioner of Internal Revenue, by regulations, or the Courts, by judicial legislation, to bring something within the ambit of a tax that Congress has not placed there.- This rule must, of course, work both ways. In devising a scheme of taxation Congress may well discern an area of limited dimensions in which it considers that special relief is indicated. It may then determine that carving out a special exemption will not cut so deeply into anticipated revenues as to cause the favoring of the limited class to bear too heavily on the great bulk of the taxpayers. Congress must then be able to enact a statutory exemption for such limited area with its restricted revenue loss with the assurance that such exemption will not be broadened by judicial fiat into something covering a much larger area and involving manifold greater revenue loss.
Here Congress provided an exemption from gross income of "amounts received through health insurance as compensation for sickness." The taxpayer seeks to have included in such exemption amounts paid to the employe by the employer which in fact comes to him as a continuation of his regular salary during sick leave.
Both parties, in their briefs, discussed at length the particular terms of the voluntary plan put into effect by the employer, the Southern Bell Telephone & Telegraph Company, under which it provided pay benefits to sick or injured em ployes on a sliding scale, varying from full pay for four weeks, and half pay thereafter for nine weeks for an employe with from 2 to 5 years' service, up to full pay for a year for an employe, such as taxpayer, with 25 years or more. We think the details of the plan are relatively unimportant, since it cannot be disputed that there is no separate contract or agreement of insurance covering an obligation to pay any amounts to the company's employees. We think it clear that when Congress limited the exempt payments to "amounts received through health insurance" it had a concept, clearly stated, of amount* the payment of which was definitely and with binding force fixed by an insurance contract between the employe and an insurer or between the employer and an insurer for the specific benefit of the employe.
In the, trial court there was evidence to the effect that sickness and health insurance was not ordinarily written for full salary amounts; that the employer here did not make payments on an actuarial basis in relation to the amount of risk or to any other factor of age, state of health, or anything else; that no reserves were set up as is ordinarily done in the case of insurance, and that benefits were voluntarily fixed by a management committee. The importance of this evidence is not to prove that the company's plan here was unlike insurance, but it was relevant and of great weight to the proposition that when Congress exempted only such amounts as come "through health insurance," it had a clearly defined class in mind, and that this class is readily identified by normally having a bundle of attributes or characteristics associated with the term "insurance." This class of persons whose payments were exempt were those who, for a definite consideration, having an actuarial relation to the benefits provided, paid by them or on their behalf, obtained insurance coverage under ordinary insurance standards. There was thus an ascertainable amount of gross income involved, from which an estimate of loss of revenue to the government could be made. This loss, would obviously be quite different from the loss that would result if the class designated by Congress was made to include every employe who received payments of salary or wages by the voluntary action of his employer during sick leave.
Our reference to the loss of revenue is not intended to suggest that such loss has any part in enabling the Court to. construe a tax statute. The government makes no such argument here and we would not consider it if made. The reference to the differing impacts upon the revenue is cited to indicate that Congress, in adopting an overall scheme of taxation in which the revenue loss of each exemption plays an important part, must choose words of description to set. apart those taxpayers or payments within the exemption. In this case the term "through insurance" was the terminology adopted by Congress for this purpose.
We think it clear, without resort to any but the fundamental rule that words are ordinarily to be taken tornean what they usually import to the average person, that Congress meant to-give the exemption here only to amounts received through insurance. If it had:. intended that all payments received as compensation for sickness were to be exempt it would, of course, not have used the words "through insurance" at all. They would clearly have been superfluous and misleading if that had been the intent of the lawmakers.
Appellee here relies on the decision of the Court of Appeals for the Seventh Circuit in Epmeier v. United States, 7 Cir., 199 F.2d 508, 511, by which case the trial court doubtless felt bound. Although there are present in the Epmeier case facts that might warrant our distinguishing it from the case before us, we think that even those facts are unimportant in construing the statute here before us. In Epmeier the employe was-working for an insurance company, a company which had the authority to is sue health insurance, although no health insurance had actually been issued by it to cover the payments involved in that litigation. The nature of the employer's business was stressed by the Court, but it also construed the purpose of the statute as "to relieve a.taxpayer who has the misfortune to become ill or injured, of the necessity of paying income tax upon insurance benefits received to combat the ravages of disease or accident."
With deference to the views of that distinguished Court, we are of the opinion that the purpose of the statute was to exempt from income tax the proceeds of insurance which had been bought and paid for by the payment of premiums consciously and knowingly made for "health inuranee." Whatever the activating motive of Congress may have been in passing the law, its intent was clear that the exemption was to apply only to payments received through insurance. The payments made to the taxpayer here by the Southern Bell Telephone & Telegraph Company during his absence on sick leave were not such payments. They had no relation to health insurance. See Moholy v. United States, D.C.N.D.Cal., 132 F.Supp. 32, pending on appeal C.A.9; Branham v. United States, D.C.Ky., 136 F.Supp. 342; and Herbkersman v. United States, D.C.S.D.Ohio, 133 F.Supp. 495, pending on appeal C.A.6. These cases deal with similar questions, the first two having been decided by the district court in favor of the government, the third in favor of the taxpayer.
The judgment of the trial court erroneously construed the exemption statute as covering payments which were not, in fact, received through health insurance. It must be reversed and judgment rendered for the appellant.
Reversed and rendered.
. The applicable statute is as follows:
Internal Revenue Code of 1939:
Ҥ 22. Gross income
*
"(b) [as amended by Secs. 113 and 127(d), Revenue Act of 1942, c. 619, 56 Stat. 798] Exclusions from gross income. The following items shall not be included in gross income and shall be exempt from taxation under this chapter:

"(5) Compensation for injuries or sick-ness. Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 23 (x) in any prior taxable year, amounts received through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by. suit or agreement on account of such injuries or sickness, and amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces . of any country;
26 U.S.C.A. § 22.