Court Opinion

ID: 9450120
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:35:51.373577+00
Date Added: 2024-06-11T17:32:09.555466
License: Public Domain

BREITENSTEIN, Circuit Judge
(concurring in result).
I find it unnecessary to go into the details of the mathematical formulas provided by §§ 804 and 809 of the Life Insurance Company Income Tax Act of 1959, 26 U.S.C. §§ 801-820, or to explore the legislative history of that Act.
Income of the companies subject to the Act is divided into a policyholders’ share and a company’s share. The company is taxed on its share. The uncontroverted showing of Atlas is that, on the facts pertaining to its 1958 income, the inclusion of interest on tax-exempt securities in the statutory formulas increases the company’s share and results in a tax of $11,-252.19 more than would have been payable if tax-exempt income had been excluded therefrom. The imposition of tax in this amount results solely from the inclusion in the formulas of income from tax-exempt securities.
Both § 804(a) (6), relating to taxable investment income, and § 809(b) (4), relating to gain from operations, provide that if the application of the definitions found in those sections results in the imposition of a tax on interest which under § 103 is excluded from gross income (interest on state, municipal, and certain other securities), “adjustment shall be made to the extent necessary to prevent such imposition.”
The operation of the formulas is such that the tax actually is imposed on taxable income, but this result does not excuse the United States for failing to make the adjustment. National Life Insurance Company v. United States, 277 U.S. 508, 48 S.Ct. 591, 72 L.Ed. 968, and Missouri ex rel. Missouri Insurance Company v. Gehner, 281 U.S. 313, 50 S.Ct. 326, 74 L. Ed. 870, hold that a tax is imposed on tax-exempt property by an increase in tax on taxable property arising solely from the ownership of tax-exempt property.
I grant the power of Congress to classify income, within constitutional limits, for income tax purposes; and I recognize that the reserve deduction which comes from the division of income into the noted shares is a matter of congressional grace or bounty. The issue is the exercise of a power rather than the existence of a power. The statute under consideration discloses a clear intent not to tax in*400come from state and municipal securities. No uncertainty in this regard exists to require recourse to legislative history for the ascertainment of congressional intent.
We are bound by the National Life and Missouri v. Gehner decisions. With full knowledge of those decisions, Congress provided that if the application of the statutory method causes a tax on tax-exempt income an adjustment shall be made to prevent such a result. By refusing to make the necessary adjustment the government, in effect, has written §§ 804 (a) (6) and 809(b) (4) out of the statute. Atlas is entitled to recover the overpayment.