Court Opinion

ID: 9442332
Source: CourtListenerOpinion
Date Created: 2023-08-03 18:44:09.359528+00
Date Added: 2024-06-11T17:29:03.883577
License: Public Domain

CLARK, Circuit Judge
(dissenting in part).
I agree that the judgment must be reversed, but do not share in the view that some amount less than the $5,000 expended by the employer for this taxpayer in each of the years in question may be found to be the value of the annuity and hence the amount of additional compensation for which he is to be taxed.1 For the contrary seems to me well supported in reason and well established by the authorities cited in the opinion, some directly in point and some with, I suggest, immaterial variations of fact. In the light of modern conditions of life, the satisfying of the highly natural and indeed burning desire of most men of middle age to obtain security for their old age and for their widows at death seems so clearly an economic benefit that I wonder it has been questioned as much as it has. Nor do I see the need to support this conclusion by looking for some highly theoretical possibility of turning this benefit into immediate dollars and cents any more than in the case where an employee is furnished living quarters or meals. Just as the latter are valued as additional compensation, though not assigned or assignable, so I think this highly valuable security is a purchased benefit for these company executives. Consequently the making of nice distinctions in either taxability or the amount thereof between assignable or accelerable annuities or their delivery or retention by the company—after careful forethought and advice of its attorneys with naturally an eye on both pension and tax possibilities 2—seems to me improper, when the general purpose to make adequate retirement provisions for these employees was made so clear.
Hence for any issues here involved I do not think it is important to discover what reasons impelled the employer to make the slightly differing provisions from those before this court in Ward v. Commissioner, 2 Cir., 159 F.2d 502, 505. Perhaps the employer may have had the prescience to foresee these tax problems which are troubling my brothers and did trouble the court below and may result in at least postponement, if not non-collectibility, of most, if not all, of the tax on the additional return provided by the employer for these *868executives. Perhaps, rather, the employer was providing only for a surer , provision “free from the claims of all creditors to the fullest extent permitted by law” for this taxpayer and his wife. So in retaining possession of the policies and cherishing the present intent not to permit acceleration of the annuities, the employer may have had in mind a way of both securing the purchased services to the retirement age in normal cases and guarding against unusual situations due to disability or other special cause. In any event the fact is that the employer purchased at the going insurance rate those contracts which for the parties fulfilled the conditions desired.3 Actually they would return to the annuitant, or to his widow, total amounts at least well in excess of the premiums paid and increasing yet more the longer he lived. The parties got just what they paid for in the insurance market, and its cost price is the additional compensation the executive received. The two features stressed in the opinion, namely, the nonassignability and the present nonaccelerability of the annuities, may add to their usability for the particular purpose, but would seem not to change the basis of value. Perhaps, indeed, they render the contracts more desirable not only to the employer, but also to the annuitant’s wife, as making the security provisions less easily impaired, and thus have a special appeal to a huband solicitous of his wife’s future. At least, I do not see what basis we have for thinking they adversely affect values of provisions for a particular purpose, viz., security. If, in fact, these conditions do affect the amount of the premium, as the opinion rather naturally assumes, then all the more is the bargain of the parties to be respected as made; even the annuitant would doubtless be interested in a maximum return though it be strictly limited to himself or his wife. It seems to me that there is being set up some premise, not found in any of the precedents, of a fictitious partly-impaired transferability which is now somehow to be given a value in place of the wholly practical values set upon these contracts in the insurance market itself.
Of the cases, Hackett v. Commissioner, 1 Cir., 159 F.2d 121, seems directly in point and Judge Mahoney’s opinion wholly persuasive as to both the meaning of the statute and the value to be set upon a nonassignable annuity .contract. The suggested ground of distinction, that here retention of the policy by the employer cut off the acceleration privilege, cannot be accepted, since there does not appear to have been any such privilege in the annuity there considered; for no mention of the fact, or allusion of any kind to it, is made by the court. The same is true in Oberwinder v. Commissioner, 8 Cir., 147 F.2d 255, which also appears to be on all fours with this case. Similar results were reached in Hubbell v. Commissioner, 6 Cir., 150 F.2d 516, 161 A.L.R. 764, and by this court in Ward v. Commissioner, supra; for the reasons I have stated, the fact that the annuities in these cases were assignable should not make their purchase price any more accurate a gauge of their value than is the purchase price here. A like conclusion has been reached' with respect to insurance premiums, Commissioner of Internal Revenue v. Bonwit, 2 Cir., 87 F.2d 764, certiorari denied Bonwit v. Helvering, 302 U.S. 694, 58 S.Ct. 13, 82 L.Ed. 536, and amounts deposited in the federal Civil Service Retirement Fund, Miller v. Commissioner, 4 Cir., 144 F.2d 287; while no case supporting a lesser valuation has been discovered. True, in the Ward case we spoke of the failure of the taxpayer “to show that the contract was not worth as much as it cost.”, Surely there is nothing in this record to suggest anything different. Here there was even an official of the insurance company to testify to the somewhat ordinary nature of these contracts. That the parties actually got the particular provisions they desired *869for their purposes does not at all suggest that the policies were overpriced.
Hence unless these benefits are now taxed, this small group of top executives will be given a tax advantage not accruing to less fortunate or less well-advised persons. Such taxation should not be confused or rendered abortive by directions for valuation impossible of execution in any realistic way.

. This would call for dismissal at least of any claim for refund of the 1939 taxes. The special point as to the 1940 taxes appears to have been first raised in the appellee’s brief before us; as to this I should have been disposed to ask for further argument. On the basis of what is now before us, I am inclined to doubt the conclusion of the opinion that the additional compensation was not taxable in 1940. It was actually paid in 1940; moreover, the policy was issued in Hartford on December 28, 1940, and it was mailed from Philadelphia to the employer by an insurance agency corporation with which the employer had arranged for the contracts in a letter of December 31, 1940, enclosing the “contracts bought in the year 1940.”

. The annuity contracts for the earlier years, 1936 and 1937, were actually delivered by the president to the taxpayer and the other annuitants, but were retrieved after counsel had advised this course.

. This was a tightly controlled corporation, so much so that the executives receiving the annuities and their families owned approximately 35. per cent of the voting stock, while the older officers and directors owned approximately 57 per cent. Hence there was never a sharp divergency of interest between these executives and their employer.