Court Opinion

ID: 9446344
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:52:38.581622+00
Date Added: 2024-06-11T17:30:37.416916
License: Public Domain

WISDOM, Circuit Judge
(dissenting).
With all due deference to my able associates, it seems to me that the majority opinion does not meet the issue squarely.
The case presents the question: Were the amounts the taxpayer paid the insurance company interest under Section 23(b)? This question is not answered by showing that Section 24(a) (6) does not prohibit deductions for amounts paid on indebtedness to purchase an annuity contract, as distinguished from a life insurance or endowment contract. Section 24(a) applies to specific items that are not deductible. It does not purport to say what items are deductible. As I see it, regardless of Section 24(a) (6), the taxpayer’s payments must still qualify as interest under Section 23(b).
The issue is not met by showing that the contract was a legitimate annuity and that the Sam Houston Company complied with the Texas Insurance Code. On the contrary, as a legitimate annuity, the payments produced the same insurance effects ordinary annual premiums produce. All premiums, of course, “confer real and genuine benefits in excess of the amounts paid.” There is no pretense, however, that delivery of the note for $100,000 produced the effect of payment in cash of a single premium for that amount. The taxpayer’s payments were no more than annual premiums, the purchase price of the contract on a deferred payment plan. And, interest is not purchase price.
It seems to me that this Court must say what interest is under Section 23(b) and why the taxpayer’s payments come within or fall outside of the definition.
The Supreme Court has defined interest as “the amount which one has contracted to pay for the use of borrowed money”. Old Colony Railroad Co. v. Commissioner, 1932, 284 U.S. 552, 52 S.Ct. 211, 214, 76 L.Ed. 484. It has the same meaning in the market place. “In the business world ‘interest on indebtedness’ means compensation for the use or forbearance of money”. Deputy v. Du-pont, 1940, 308 U.S. 488, 497, 60 S.Ct. 363, 368, 84 L.Ed. 416. That is the dictionary meaning of “interest”. There is nothing to indicate that it has a different meaning on Capitol Hill.
The majority opinion quotes this language from the Supreme Court, but accents “indebtedness” and states that “the Government insists that this is not an indebtedness”. True enough, the government argues that “there was no real indebtedness”. The crux of the case for the government, however, is that, for purposes of tax deduction, interest is confined to payments made for the use of borrowed money. Here, since no money or other economic benefits were *585advanced to the taxpayer by the company, the payments were not interest.
Some legal terms should be as expansible and contractible as an accordian. But not the term “interest” in a taxing statute. Taxpayers and tax collectors should have the benefit of certainty of meaning; well, as much certainty as a clear definition by the Supreme Court carries.
I respectfully dissent.