Document: 53 L.Ed.2d 653 97 S.Ct. 2523 433 U.S. 148 COMMISSIONER OF INTERNAL REVENUE, Petitioner,v.STANDARD LIFE & ACCIDENT INSURANCE COMPANY. No. 75-1771. Argued May 30, 1977. Decided June 23, Syllabus The "net valuation" portion of unpaid life insurance premiums (the state law requires a company to add its reserves), but not the "loading" be used pay salesmen's commissions, other expenses such as taxes and overhead, profits), held required included in company's assets gross premium income, well reserves, for purposes computing federal income tax liability, notwithstanding computation necessitates making fictional assumption that has been paid not. This treatment is accordance with § 818(a) Internal Revenue Code 1954 (as added by Life Insurance Company Income Tax Act 1959), which computations made "in manner consistent annual statement approved National Association Commissioners," unless NAIC procedures are inconsistent accrual accounting rules, extent Treasury Regulations require different they therefore invalid. Pp. 152-163. 525 F.2d 786, reversed remanded. Stuart A. Smith, Washington, D. C., petitioner. Vester T. Hughes, Jr., Dallas, Tex., respondent. Matthew J. Zinn, American Council Insurance, amicus curiae, special leave Court. Mr. Justice STEVENS delivered opinion 1 In this case, second time Term, we construe complex concerning companies.1 issue case deferred uncollected includable "reserves," "assets," "gross income," those concepts 1959.2 2 * Premiums on respondent's policies often payable installments. If an installment when due, policy will lapse, generally after grace period. However, there no legally enforceable duty premiums. An falling due between end year policy's anniversary date called "deferred premium." 1961, most recent issue, respondent had $1,572,763 Pet. Cert. 4a. overdue at "uncollected premium" if yet lapsed. $231,969 Ibid. For convenience, shall refer both simply "unpaid premiums." amount charged policyholder includes two components. Under law, must part reserves ensure it have sufficient funds death benefits. amount, valuation premium," determined under mortality interest assumptions. rest "loading," covers profits overhead. 3 normal would ignored. They properly accruable since legal right collect them. Nevertheless, past century, companies equal net their offsetting addition assets. State uniformly premiums, does form issued Commissioners (NAIC). national organization regulatory officials, acts behalf various departments, performs audits like do business many States. form, known industry "Annual Statement," financial reporting. effect, calculating treat these some paid. 4 involves years 1958, 1959, 1961. returns each years, just did statement. 1959 also followed including income. however, excluded entire from Commissioner assessed deficiency because not, any include loading his view, calculated paid, same should apply calculation Court upheld deficiency; Appeals reversed.3 It reserve was correct law. court further accord practices, could considered either or before were actually collected. 5 Courts taken varying approaches problem. position Tenth Circuit conflicts decisions four Circuits.4 reason, question important revenue,5 granted certiorari. 429 814, 54, 50 74. 6 Although problem perplexing one, indicated diversity among Circuits, find guidance 26 U.S.C. 818(a), governs method companies. our deference established NAIC. procedures, hold loading, reserves. 7 Resolution us understanding how assets, enter into taxable We begin summary legislation now calculated. then turn discussion application case. II 8 Throughout history tax, Congress view taxed amounts collected purpose paying basic theme implemented ways. 9 From 1913 1920, companies, allowed deduction "the . within ."6 period Government first challenged, accepted, practice deducting additions based without taking income.7 10 Beginning 1921, only investment companies; income.8 deduct fixed percentage total income.9 attributed use apparently questioned during There occasion consider whether treated "income" all exempt 11 statute applies 1957. preserves concept taxing meet obligations. makes changes, amount. First, whereas preceding statutes assumed industrywide rate return deduction, own earnings record. Second, imposing new more complex, approach somewhat comparable pre-1921 "total income" concept. B 12 order understand implications Commissioner's argument consistently "assets" necessary explain employed present statute.10 13 adds §§ 801 through 820 (26 U.S.C.). Section 802(b) defines three components "life relevant case.11 Generally, sum (1) "taxable (2) 50% (defined difference "gain operations" income).12 14 A regarded share company, taxable, "policyholders' share," not.13 policyholders' essentially ratio assets.14 increase reduce tax. 15 includes, income,15 premiums," 809(c)(1). Obviously, gain operations increased extent. Moreover, 809(d)(2), contribution diminishes gain. III 16 sense presents timing. Respondent claims creating one year, wishes recognize unfavorable consequences "premium until paid.16 As forcefully argues, lacks symmetry lack thereof redounds entirely benefit. 17 (1, 2) start premise reflected reserves.17 unbroken inception 1913. uniform States reflect statutory definition recognized purposes. 801(b)(2). matter genuine contingent liability exists records. effects transcend consequences.18 critical importance scheme,19 conduct business, cannot unknown Congress. clear, think, radical departure intended. 18 Having decided though difficult far assumption. Since problem, inquiry governed 818. title indicates, 818 contains "Accounting provisions" relating Code. provides: 19 "(a) Method accounting. 20 "All entering determination imposed 21 "(1) accounting, 22 "(2) permitted regulations prescribed Secretary delegate, combination chapter (other than cash receipts disbursements method). 23 "Except provided sentence, Commissioners." 24 legislative clear "not inconsistent" rules.20 words, except rules indicate contrary result, "shall" apply.21 25 With test mind, proposed solutions Essentially, decide scope given Four proposed. 27 (3) prepayment applied ignored That significantly distorts equation favor taxpayer against Government. accept notion perfect laws, measure consistency item affecting interrelated elements formula calculate think Commissioner, Appeals, see n. 4, supra, rejected one-sided 28 assume none associated incurred. Thus, determining expenses. Commissioner. See Treas. Regs. 1.805, 1.809-4, CFR 1.805-5, 1.809-4 (1976).22 obvious requiring (including loading) asset improperly accelerate payments; major applied, received, deductible items sales commissions. doubly objectionable: imposes received; treats even disbursed result accepting greater unacceptable. 29 Third, extended fiction certain incurred.23 These courts allow upon receipt premium. precisely what receive treatment. adopted eliminates much unfairness position. But take statute. nothing directing obviously provide fashioning set deductions credited 30 (4) fourth approach, contrast, support preparing Annual Statement, firmly anchored text establishes preference methods.24 while excluded.25 might described adopting throughout decades, confronted area. Western Co. Texas v. 51 T.C. 824 (1969), modifying 285 (1968), rev'd, 432 298 (CA5 1970). By sides equations, satisfies large quest symmetry. avoids uncertainty confusion attend attempt segregate nondeductible parts. Finally, provides practical rule minimize likelihood future disputes. 31 rejection justified found dictates general speak Any equally good bad claim being "an method." controlling, fill gap.26 32 Accordingly, conclude liabilities To Secretary's 33 judgment reversed, remanded proceedings opinion. 34 so ordered. 35 STEWART took consideration decision 36 WHITE, whom THE CHIEF JUSTICE joins, concurring judgment. 37 Regretfully, I join Court's position, rejected, mandated applicable Regulations, 1.805-5(a)(4)(ii) 1.809-4(a), (i) (1976). invalidated partially Court, appear me represent wholly defensible construction statute, refuse follow prefer alternative reading. 38 sentence pursuant or, Secretary, chapter. section majority recognizes, methods ignored"; them," ante, 150, mere expectancies accrued. thus 818, seems variance method, who empowered say recognized. authorize resort circumstances, does, Secretary. valid held, premium, less "load," Hence, although agree United Consumer Ins. Co., 430 725, 1440, 52 4. 801-820. 786 (CA10 1975). Jefferson Standard States, 408 842 (CA4 1969), cert. denied, 396 828, 90 77, 78; 1970); Southern 460 (CA6 1972), 409 1063, 93 555, 517; Franklin 399 757 (CA7 1968), 393 1118, 89 989, 122. informed substantially $100 million dispute. 8. See, e. g., Tariff 1913, II(G)(b), Stat. 173; 1916, 12(a) 39 768; 1918, 234(a)(10), 40 1079. Prudential America Herold, 247 F. 681 (N.J.1918), argued entitled credit full value examined argument: "The decided, therefore, plaintiff, figuring make, policies. defendant's contention respect up plaintiff's 'reserve' consisted (as, clearly, included, Mutual Benefit Herold (198 199 (N.J.1912)); Conn. Gen. Eaton (218 188 (Conn.1914))), taxation, funds. argument, begs question, is, clearly defined Supreme McCoach North America, 244 585, 709, 61 L.Ed. 1333, sums aggregate laws plaintiff maintain fund, character actual 'reserve funds'. No character, effectively withdrawn expended. New Jersey, obligatory account materiality funds' of, cash, securities, real estate, Id., 685-686. Subsequently, Bureau acquiesced. bulletin employees said: can reduced Treas.Dept., Revenue, Bulletin H, Rulings Peculiar Companies (1921), Ruling 14, p. 9. 8, 7. 244(a), 42 261. levied excess over deemed claims. If, example, 4% payment policyholder, realized 5%, 1%. reflects themselves, needed satisfy claims, projected taxed. 245(a)(2), 261; 1924, 245(a) (2), 43 289; 1926, 44 (pt. 47; 1928, 203(a)(2), 45 843; 1932, 203(a) 47 224; 1934, 48 732; 1936, 49 1711; 1938, 523; 1939, 203(a), (1952 ed.). Like parties, emphasize role calculations. Other factors involved calculations, pension plan estate transactions, little significance "Life defined. "For part, term 'life income' means 804) smaller, 809), exceeds percent excess, plus "(3) subtracted policyholders surplus 815." discussion, 802(b)(1), figure situation probably arise lost money noninvestment operations. rather intricate establishing 804 prescribes division parts, share. More specifically, contract requirements divided yield resulting allocate tax-exempt interest, partly company. approximately 85% assigned was, provides, income." Atlas 381 233, 236-237, 85 1379, 1381, 358 (footnotes omitted). Actually, steps. dividing (§ 805(b) (2)). derived four-year average lower current 805(b)(1) (3)). adjusted comparing calculated; point additional 10% decrease account, vice versa 805(c) (1)). multiplied 805(a)(1)), germane here "policy requirements" 805(a)). step computation, determine 804(a)(1)). expenses, depreciation depletion 804(c)). operations, 809(a) (b)(3). policyholder's obtained reserves) yield. simpler 805 recomputed 1958 adjustments resulted 1960. reject contend otherwise. Tr. Oral Arg. 19. controlling qualifies company" meaning Senate Report describes provision follows: Subsection (a) identical House bill, subchapter L subsection that, may delegate reporting realty casual personalty (see sec. 453(b)) may, S.Rep.No.291, 86th Cong., 1st Sess., 72-73, U.S.Code Cong. Admin.News pp. 1575, 1648 (1959). language Report, H.R.Rep.No.34, mandatory contained contrasted permissive describe covered regulations. 818(a)(2) merely allows permit deviations concern optional here. cite examples Example (1)) premiums" 1.809-4(a)(1)). addition, 1.801-4(f) "(i)n event basis facts particular (unpaid premiums) and, accordingly, includible appropriate reduction reserves." Based latter Regulation, disregarded purposes, reasons stated Part III-A. Great Commonwealth 491 109 1974); Federal 527 1096 1975); Cas. Comm'r, 533 1046 (CA8 1976). Evidence congressional limited defining "expenses incurred" expressly Convention 832(b)(1)(A), (b)(6). filed brief curiae oral urging adoption ground intended "to relegate substantive excluding concomitant impact NAIC." F.2d, 760. gives filling gaps problems one.

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