Court Opinion

ID: 4476262
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:55.882343+00
Date Added: 2024-06-11T15:04:29.064407
License: Public Domain

Hill, J., dissenting: I agree with the majority that the contracts under which the payments here involved were received by petitioner are not annuity contracts and that the provisions of section 22 (b) (2) for the taxing of annuities do not apply. It is my opinion, however, that such contracts are not insurance or endowment contracts within the meaning of section 22 (b) (2) and that that part of such payments which represents increment to the cash surrender values of the insurance policies is taxable income in the year received under section 22 (a). Both the insurance and endowment contracts represented by the insurance policies ceased to exist when the insured stopped performance thereof and surrendered them before maturity. The amounts of the surrender values were immediately payable in cash to petitioner. The total of such surrender values measured the money obligation of the insurance companies to petitioner. The total of the amounts of such surrender values represented that part of the premiums paid on the insurance policies in excess of that earned for life insurance. Had the cash values of the policies been paid to petitioner at the time of the surrender of the policies there would have been returned to him in full that part of such premiums. Instead of an immediate cash payment of the surrender values at the time of the surrender of the policies, petitioner elected to accept a contract for the payment of such surrender values with an increment thereto tantamount to interest payable in amortized installments over a specified period of years. That was not an insurance or endowment contract. Hence, the provisions of section 22 (b) (2) do not apply. The endowment contracts ended upon the surrender and cancellation of the policies before their terms had been performed. The contract for payment of the surrender values of the policies was one merely for the discharge by deferred installment payments of a fixed money obligation together with a stipulated added compensation for use of the money pending such deferments in payment. Each installment payment represented a proportionate part of the total amortization of the principal and the increment thereto. Hence, with each installment payment petitioner received an aliquot part of the total increment provided by the deferred payment contract. It is my view that such increment is taxable under section 22 (a) as and when received. The total of the increment amortized and the total amounts of the installment payments received by petitioner in the taxable year are ascertainable from the facts of record. Therefore, the part of the increment which is taxable income to petitioner in the year involved is readily calculable. It is suggested that the views I have here expressed are outside the issue herein presented, namely, whether the installment payments are taxable as annuities, and hence have no place in the consideration of this proceeding. It is my opinion that the question we have to decide is whether on the facts presented the deficiency in tax determined by the respondent should be sustained in whole or in part under any provision of the revenue acts.