Opinion ID: 2792378
Heading Depth: 2
Heading Rank: 2

Heading: Fixation of Liability

Text: The government also argues that MassMutual can only deduct the guaranteed dividend in the tax year in which the dividends were paid and cannot deduct them in the year the guaranteed dividend was determined, because a condition precedent to the payment guarantee— i.e., that the policies remain in force as of the anniversary date—may not be satisfied. It correctly explains that the “all events” test, in part, requires that a liability first be firmly established, because one cannot deduct a liability that is contingent or contested. See Gen. Dynamics, 481 U.S. at 243–44 (“Nor may a taxpayer deduct an estimate of an anticipated expense, no matter how statistically certain, if it is based on events that have not occurred by the close of the taxable year.”); United States v. Hughes Properties, Inc., 476 U.S. 593, 600 (1986) (“[T]he Court’s cases have emphasized that ‘a liability does not accrue as long as it remains contingent.’”) (quoting Brown v. Helvering, 291 U.S. 193, 200 (1934)). The government’s assertion that MassMutual’s obligation to pay the guaranteed dividends is contingent on an event that cannot be determined until the year the dividends are paid is factually incorrect, however. The government’s argument concerns the requirement that a policy still be in force before a dividend is paid to a policyholder. Because it is unknown whether a policyholder will surrender his or her policy before its anniversary date, the government contends that the obligation to pay the dividend is contingent upon an event that would not occur until the next year, and is therefore not fixed. Again, the government cites heavily to New York Life to bolster its contention. The government’s reliance on New York Life is misplaced. While the present case is similar to New York Life in the sense that both cases involve policyholder dividend deductions, the facts of this case dictate a different outMASSACHUSETTS MUTUAL LIFE INS v. US 17 come than the one reached in New York Life. In guaranteeing a certain amount of dividends each year for its policyholders, MassMutual promised an entire class of policyholders that they would be entitled to the guaranteed payments on a pro rata basis. On the other hand, New York Life made such guarantees on an individual basis. See New York Life, 724 F.3d at 259 (explaining that the company’s practice was to credit an individual policyholder’s account with the dividend before the policy’s anniversary date and deduct these credits from its gross income, before the dividends were actually paid to policyholders in the following year). While the government attempts to equate the two fact patterns, the difference between the two is significant. Only in one instance will an individual policyholder’s choice to end the insurance policy early affect the company’s obligation to pay the dividend—the case presented in New York Life. Because MassMutual guaranteed the dividend to a class of policyholders, an individual’s decision to terminate his or her policy does not affect MassMutual’s obligation to pay a dividend to the remaining members of the class of policyholders. Rather, it affects only how much MassMutual would pay the remaining members of the class. So long as there is at least one member of the class remaining, the guaranteed dividend would be paid. At the end of each disputed taxable year, there were thousands of paid-up post-1983 policies with no risk of lapse, thus MassMutual was obligated to pay at least this group of policyholders. And by its declaration to pay a guaranteed dividend to the class of eligible policyholders, MassMutual was obligated to pay at least this group the guaranteed amount. While the composition of the class could change throughout the year, this does not change the outcome of this case, because not knowing the ultimate recipient of the payment does not prevent a liability from becoming fixed. Hughes Properties, 476 U.S. at 601; Wash. Post Co. 18 MASSACHUSETTS MUTUAL LIFE INS v. US v. United States, 405 F.2d 1279, 1284 (Ct. Cl. 1969) (explaining that “when a ‘group liability’ is involved, it is the certainty of the liability which is of utmost importance . . . and not necessarily . . . the identity of the payees.”). So long as an obligation is not subject to some event that must occur for a liability to become due, then the liability is considered fixed. Gen. Dynamics, 481 U.S. at 244. In this case, the only uncertainty at the end of the year in which the guarantees were determined was who would ultimately make up the group of policyholders—there was no question that MassMutual had passed an absolute resolution to pay the guaranteed dividend and that at least some policyholders were already qualified recipients of that guarantee. Accordingly, the liability to pay the guaranteed dividend became fixed in the year in which the board of directors adopted the guaranteed dividend resolutions and at least some number of policyholders had paid-up premiums for their policies, facts which the Court of Federal Claims determined existed for each of the tax years in question.