Legal Document

381 U.S. 233 85 Supreme Court Reporter 1379 14 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 358 UNITED STATES, Petitioner,v.ATLAS LIFE INSURANCE COMPANY. Number 489. Argued March 31, 1965. Decided May 17, [Syllabus from pages 233-234 intentionally omitted] Archibald Cox, Sol. Gen., for petitioner. Norris Darrell, New York City, respondent. Daniel baron Goldberg, Attorney General of Louisiana and others, as amici curiae. Mr. Justice WHITE delivered the opinion Court. 1 The Life Insurance Company Income Tax Act 1959,1 which represents a comprehensive overhaul laws relating to taxation life insurance companies, places tax upon taxable investment income one-half amount by total gain operations exceeds income.2 In arriving at operations, 1959 Act, consistent with prior law in this regard, recognizes that companies are required maintain policyholder reserves meet future claims, they normally add these large portion their annual reserve increments should not be subjected tax. question case is whether method Congress chose deal arrive an impermissible on interest earned municipal bonds, within meaning itself relevant cases I. 2 defines company reserves,3 provides rather intricate establishing purposes deemed added each year reserves4 § 804 prescribes division into two parts, policyholders' share company's share.5 More specifically, reserve—the policy other contract liability requirements—is divided yield6 resulting percentage used allocate item income, including tax-exempt interest, partly policyholders company. case, approximately 85% was assigned was, provides, excluded income. remainder considered From allocated allows deduction (and nontaxed items) income.7 arrived much same process above described. 3 Section 804(a)(6), however, follows: 4 '(6) Exception.—If it established any application definition contained paragraph (2) results imposition on— 5 '(A) under section 103 gross 6 'adjustment shall made extent necessary prevent such imposition.' 7 An identical exception 809(b)(4) providing calculation operation. Code exclusion state bonds. 8 According Commissioner, investments includes only its pro rata since fully deductible company, imposes no all exempt interest. Atlas, claims otherwise: entitled deduct both full addition received; assigning part account than necessarily more return; thus pays because has received must account. 9 Claiming adjustments provided §§ 804(a)(6) 809(b)(4), sued refund District complaint also alleged treatment accorded contrary Constitution principles set forth National versus States, 277 508, 48 591, 72 L.Ed. 968, State Missouri ex rel. Gehner, 281 313, 50 326, 74 870. rejected 216 F.Supp. 457 (D.C.N.D.Okl.), but Appeals reversed, 333 Federal Reporter, 2nd 389 (C.A.10th Cir.). That court formula impose Gehner hence terms adjustment required. We granted certiorari consider important companies. 379 927, 13 340. 10 reverse, holding circumstances there statutory or constitutional barrier Atlas exceptions applicable. II. 11 Under undivided assets represented fund held benefit policyholders. drawn commingled assets. Each share. reserve, taxed either jof then reduced It apparent face intended general did usual lay have effect, so bring clauses Otherwise would become rule little, if any, utility. 12 This view supported legislative history. As H.R. 4245 came Senate after passage House, deducting reserves, 'double deduction' interest.8 one many subjects comment extensive hearings followed before Committee Finance. repeatedly strongly argued were entire provisions regard discriminated against constitutionally invalid adverse consequences bond market.9 Other witnesses, those representing Treasury Department, bill accord proper permissible interest.10 very doubtful remained conclusion unexplored facts legal arguments concerning aspect bill. Committee, behind it, reported out amendments which, among things, took decidedly different approach ascertainment handling essentially statute described above.11 time again stated Report who presented floor Senate, purpose avoid taxing interest.12 Senator Byrd, chairman, '(i)n & N Dec. Immigration Nationality Decisions intention committee interest.' 105 Cong.Rec. 8401. extremely difficult read hearings, reports, debates without concluding provided, sense. 15 None materials called our attention, explain why what save mere recitations reports where shown tax.13 may thought peculiar particular require provide. If examples illustrations aberrational situations referred explained. And sole function Commissioner surely judgment, nothing record indicating anything typical apply formula. 16 effect views built-in safety valves triggered operational final determination lawsuit, one, new formula, judgment Congress, does indeed place heretofore decided unreasonable had writing we cannot agree Life, provide triggering play. III. 17 struck down provision federal permitted exclude reduce otherwise available result being paid been entirely sources. provision, shifting nontaxable securities lowered neither nor compared deriving sources, enterprise derived sources pay per dollar i.e., reserve. Unable perceive reducing reduction another, intent receipts, ruled '(o)ne greater burdens his property solely he owns some free.' U.S., 519, S.Ct., 593. 18 obvious Act. Here, receiving nonexempt same, less, taxpayer displaces size base, tax, reduced. burden increase, remains same.14 19 But urges when conjunction means imposed whenever received. ad valorem net personal Exempt government bonds base 84%—the ratio assets—of legally allowed deduction. hold 'a subject merely securities.' 321, 328. paraphrase correct states principle cited.15 infringe rule. Reducing ration increased property. Court, nevertheless, invalidated 'the ownership basis denying exemption own bonds.' 321—322, apparently reserves. Otherwise, disregard exacting does, therefore, condemn increase rate dollars owning securities. 20 extension soon repudiated.16 Denman Slayton, 282 514, 51 269, 75 500, Term unanimously upheld 214(a)(2) Revenue 1921, generally except indebtedness incurred continued purchase carry securities, applied dealer whose disallowed exceeded return Although parties mention said radically different, 'was receipts demanded others enjoyed like incomes recipient tax-free 270. ignored entirely; absent Ownership 'basis Thus refused follow implications context sustained propriety disallowing expense attributable production Such disallowance receipts. 'While guaranteed exemptions strictly observed, obligation inconsistent reasonable classification designed payment just fairly imposed.' 21 Denman, distinguished mentioning Helvering Independent Co., 292 371, 54 758, Acts 1921 1924 depreciation expenses buildings owned included rental value space occupied. assumed could taxed, measure valid apportionment occupied rents Slayton make clear distinction between deductions fell former owner's use building. IV. 22 affirm announced way. view, done particularize connection 23 obtains most funds premiums exchange promise death benefits. obligated adequate grow sufficient year. receipt entails creation additions invest, invest; deny, economic substance warrant employed think claim sufficiently direct immediate justify treating major Whether viewed policyholders, or, principal cost carrying business produces income,17 credited eliminated 24 subjecting whatever source, owed whom invested chiefly obtained. inherently arbitrary irrational setting aside committed Undoubtedly contracted them dollars. Their can satisfied either, runs source. see sound reason, economic, distinguishing saying resort alone. Interest reserve.18 25 change undertaking. allocating increment bears quite clearly it. For treats way, deeming saddled equal treat pool fungible manner taxpayer's desired allocation 26 said, investing 'idle' thereby adding will higher additional all. Likewise, claimed, having commitments addition, bill, latter paying accumulate invest must, do, invest. choice kind another. lower increase. likewise unrealistic compare assume comparison augment likelihood have, assets, larger substantially offset disparity 27 wholly ignore pre-empt follows charging fair properly allocable last analysis Atlas' insistence exempt-income exclusions tantamount instead ones less doctrine intergovernmental immunity conferred did. 'designed imposed,' supra, 270, excludable Internal Code. 28 Reversed. 73 Statutes-at-Large 112, Int.Rev.Code 801—820. three-phase procedure phase dividends, rents, royalties, items. 804. 50% excess 'gain operations'—over excess, underwriting gain, consists mortality loading savings, savings fewer deaths age group servicing policies. 809. include calculating two, multiplied average current earnings one. 809(a). difference minimized applicable rate. See note 4, infra. loss deducted computed half base. Phase three certain gains shareholders two. 815. 801(b)(1). defined simply together claims. amounts estimated recognized tables rates mature liquidate arising life, annuity, noncancellable health accident policies, law, pertinent here. 805. 'policy requirements' determined series calculations. 'adjusted reserves' four preceding years, whichever lower. 'Adjusted adjusted computing actual 10% every 1% To calculated pension plan during 804(a)(1): 'Exclusion yield.—The yield (including partially dividends received) sentence, obtained dividing requirements yield; exceed yield, 100 percent.' Investment specified deductions, expenses, real estate depreciation, depletion trade limitations. 804(b), (c). Included intracorporate dividends. 804(a)(2) permits items along H.R.Rep. 34, 86th Cong., 1st Sess., 28—29, 31. Hearings Finance, 45—46, 48, 121, 187, 248—266, 304 318, 404—409, 516—518, 613—614, 694—699, 700—702. Id., 19—60, 646—654. S.Rep. 291, 6. 4245, Finance interest—'(t)he your * *.' 17. Pages 6, 18, 46, U.S.Code Congressional Administrative News 1959, Page 1592. Byrd explaining letter Department language sure resulted 103, made. 8402. detailed explanation effect. 8404. Curtis, member speech support course earlier concern about inadvertently met After reviewing illustrating operation remarked 'no credits allay fear transgressed.' 8429. passed 8438, Conference Report, adopted problem involved 520, 14—15, 1663, 10412, Houses. 24; 15; 8401, 10400, 10412—10414. Representative Mills, Chairman House Ways Means stated: 'As agreed conferees, version extensively rewrites dealing received, proviso items, appropriate my belief closely amendment, substance.' 10412. Where displaced remain same. proportion Since deductible, correspondingly smaller. decrease commensurate taxed. With $1,000,000 $800,000, 20% operations. Gain shifted See, e.g., 270; 381, 760, 78 1311; Schuylkill Trust Pennsylvania, 296 113, 119, 56 80 91; Jersey Realty Title Division Appeals, 338 665, 674—675, 677, 70 413, 418—419, 94 439. true insofar rested implied immunity. then, now, insulated taxation. 31 KF62 622, 105(a), 742 (1958 ed. Supp. V). statement Stanford Rothschild, representative objecting proposed exposition view: 'Life kinds income: On hand, cover liabilities free needed company; taxable. 'All Even excise formulas deductions. basic reason construed profit, goods sold merchant income.' 696—697. increment, strikingly similar Slayton. theory accrued nature investment, denial precisely permits. argued, limited 'but for' situations: loans charge here, relationship investments, otherwise, unless sell policies obtain investment. However be, do narrowly. producing borrows making fact invests There doubts borrowed purchased loan argument not, chargeable well requirement none pre-empting up owes sense dollar.

Classification Label: 11