Petition for Writ of Certiorari — Jefferson Standard Life Insurance v. United States

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PREME COUR OE - | AUN 10 908

" f : Mesias Davis, CLERK |

Be IN THE a

| Supreme Court of the Yuited States

— - Ocronzr TERM, CB 969

ae

JEFEERSON STANDARD LIFE INSURANCE COMPANY, .

need Petitioner

y. ‘

Untrep STATES OF AMERICA, Respondent

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES ‘COURT OF APPEALS

FOR THE F OURTH CIRCUIT

~~

= Fund W. PEEL: |

1700 Pennsylvania Avenue, N. W.

Washington, D. C. 20006.

Wits J. ADAMS, JR: ° .

611 Jefferson Standard Building

Greensbor ‘0, North Carolina 27402

CHARLES G. PoweEt, Jr.

Jefferson Standard Building

RE Ree ~___________Gheensboro,Nortir Caroling 27402

~~ Of Counsel: Attorneys for Petitioner

. Miuiter & CHEvauier

1700 Pennsylmania Avenue, N. W.

Washington, B. C. 20006

. ADAMS, KLEEMEIER, Hacan,

‘Hannan & Fours

611 Jefferson Standard Building

Greensboro, North Carolina 27402

June, ‘1969 : ye en

» ; ‘

Press or Byron S. ADAMS PRINTING, INC., Wasaincron, D. C.

oS

+ SR ‘

Opinions Below ; Jauivaluaeseiasew eka es iz

. Jurisdiction ....... OE A Ee osegee’ gevenceseeene: oo

Questions Presented ....7......6:scseseeuees coe 2

Statutes and Regulations Involved -.3 0. pcesetseeds Moet: bs

" Statement: .......:.. SU ee eee see eeeeeee . 4 |

Reasons f6r Granting A vo ochev es iia tivecne e —s.

Conelusidti }.... 2.6... eee eee eee. hei oneet serena: 41

Appendix: 7 ec cay tee a

Opinion of the Court of nui jebiaenee eae ge rae ‘4

, Judgments of the Court of Appeals ...:,....... .. 3a

" Findings of Fact and Conclusions of Law of the Dis-

trict NE as SPR o oe See cew ce abe aes ates

ee ee Te ids wesc ea beta jf

Treasury TOGUAGONG . 656 ccc iese cess icueseegings 112a

CITATIONS

CasES: j

“American gh ge Association v. United States, =

ee Se): aera err 30, 31

American Trans-@@ean Navigation Corp.: v. Commis-

sioner, 229 F.2d 97 (2nd Cir. 1956) .............. 37

American Water Works Company, Inc. v. Commis--

sioner, 243 F.2d 550 (2nd ‘Cir. 1957) ..........6. 37

Atlas Insurance Co., United staten v., 381 U.S. 933 :

SE ee ee eee TE PEE TT ee eee 33, 34, 35

Automobile Club of Michigan v. Commissioner, 393 -

8 Re 2 3 a ere re es em ery "20, 31

Artnell oo v. Commissioner, 400- F.2d 981 (7th

ates Visa een KESECR CATR ON Oe ee:

Correll, Un a States v,, 389 U.S. 299 ( 1967) aun. 25

Fidelity , a

Deposit Co.. += Maryland, United States

v., 177 F.2d 805 (4th Vir. 1949), rehearing den, ~ .

178 F.2d 753 (4th Cir. 1950) .............4. 27, 28,29 =

ll | Index Continued

. a ‘Page =~ |

Franklin Life Insurance Co. v. “United: States, 67-2

USTC Par. 9515 (S.D. Ill. 1967), Reversed in part,

399 F.2d 757 (7th Cir. oe); cert. den., — U.S. —

2g Sear etn hear eee ae 715, 20, 26, 30, 32, 28

General Reinsurance as ) }missioner v., 190 F.2d

148 (2nd Cir, 1951) .

Gould v. Gould, “945. USN Ls ee iaabenss 38

Hagan Advertising Jispays, ‘Ine. v. Commissioner, —

| 407 F.2d 1105 (6th Cir. rie! Ca eee hipaa 32, 33

Iselin v. United States,-270 U.S. 245 (1926) .......... 38

Leslie Salt Co., United’ States v., 350, U.S. 383 (1956). 38, 39

_ McFeely v. Commissioner, 296 U.S. 102 (1935)... suis’ 38, 39.

Merriam, United States v., 263 U.S. 179 (1923) ...... - 38

New Hampshire Fire Insurance Co., Commissioner: “Vey :

SD Be GO CAM aes BOOP oo cc ccd oh kees ewes 27

Pacific Employers Insurance. Co. v: Commissioner, =

POe TG AO Cir, TORT) onions chicos vena 28 .

Pacific Insurance Co., v. United sot ge 188 F.2d Ti

Se A SO oes desc eas CET eRe Ee 28

Reinecke v. Gardner, 277 U.S. 239 (1928) ca ea ceu ears 38

Schlude v. Commissioner, 372, U.S. 128 (1963) » + «+20, 30, :

31, 32

Smietanka v. First Trust ‘& Sav. Bank, 257 U.S. 602

| EE se hao soi gs ae ew 2h oe he - 38

Western National Life Ins. Co. v. Commissioner, 50 r

T.C. 285 (1968), in csnppassteaets dec., 51 T.C, — No.

81 “(1969) Sue A Reale COE R ES LEN ay hea eke -22, 26

Srivired: ee

Internal Revenue Code of 1954: = :

ows hiv ee clases We iechn een ewan se. 39

RROD Neves arsannes eahewss ere rere: 13, 39,40 °

SS. Je eae (sachs en cea ae 22, 23

PR NO a ds eects eeescees er aie Retake neeinasees oe

i NE Do eo we Sak ewe ee eo eure eee 9

ME oo ela es 5S Ns Be Dio at oe

ce EEE eee iid se Reewea sus oee (34

gE EI dnp ge a a eeR rertie aie PRN reyes Fe Bere 34

— Go See CPE Y, TENE eee Te ee es

Sec. 446(b) ........4. Sorts hr ee eee wee Tee 30

See. 801(b) ...... PP es Sea Pe eee ae en 23

00, BULeP(S)) os oe Pa EEA BM oe ere pees we

Index Continued ‘ ey, iii

o> Page

| ee OU rhs ie arcsasheae ieee 13, 40°

Sec. 804(a) ‘") i a eas Cima e ye eA 33, 34

oe Le | eR yoke een eae 11, 16, 19, 25

See. 1: ERRORS SS irene ga act a reat gar 24, 24

gt ho.) a iene eevee tee satin ae

Sec. 809(b) (4) ........... Poets eee Teste

See. 809¢c) .....- bse k a Foe Cee yee Cae fas Oe

coe eg | a Se rieseeceess sree + 9,19

See. 809(e) (3) (A) pap anas ey PE EE Od ee at 9

eee, Bites)... 25... ee eoees SU Pep pp ic Pie: "19

See. 818(a)........ Oba ee aaiae Mewes cv acess. BB, 98

| Soa re SPSS og SPER RIE oe Cd 13

~ See. i Pe Oe wee NEVOA PERU EES prec 27.

Me MR ae os Sees Ss Pane Wry ore nig! AA hs SRN EA 36

See. 1502 :..... eM a RRS Sey Pee CeCe 36

See. 1503(a) NE ead Seen re ay ee 13, 38, 39, 40

Lf

TREASURY Recu LATIONS : —

Reg. § 1.446-1 .7...... eet sp Wen Ses ea let eek xs tenn cue 30

EE Seren eae ee eee ee Tmt Aint 23

Reg. § 1.805-5(a) (4) Se Ete CeCe ee pe me re 25

Reg. § 1.809- 4(a).(1)_ ren Ray gk J ihics Mich hee ee ee 21

Bee. SIAGUPIA *,. cs. so ce, eee bene penta 36 |

- Reg. § 1.1502-31A(b)(1)(i) .<............... exes 34, 37

Reg. § 1.1502- ee Soh a Se eer er ee : 37

: TREASURY Rvuuinés: Px :

Rev. Rul. 58-246, 1958-1 C.B. 339 eee Toe EP ee

Rev. Rul. 60-289, 1960-2 C.B. 268 ...:_.- FEA Rae ae 37

G.C.M. 15599, XIV-2 C.B | cre eee Ae ay Wate

CONGRESSIONAL Reports :

H. Rep. No. 34, 86th Cong., 1st ‘tux Eeenwueecucs ae 25

S. Rep. No. 291, 86th Cong., Ist Sess. .............. 25 -

H. Rep. No. 1860, 75th Cong., op ag a 23

S. Rep. No, 960, 70th Cong., 1st Seas haiy WSO tale ok 36

~

Misc ‘ELLANEOUS:

Brief for the United Sinko § in Onpokition, ‘'Bhe Frank-

lin Life Insurance Co. v. United States, ‘October

Te%n 1968, — States Supreme Court ...... 15 .

—e a 3 : sa ice

e

_IN THE

Supreme Court of the United States

a Ocroper TERM, 1968

No.

now . :

a > \ . a

JEFFERSON STANDARD‘ LIFE INSURANCE. CoMPANY, '

3 . Petitioner ~

_ 6 iki.

7 ¥.; saan!

P : : - : <2 \

Unitep States or AMERICA, Respondent

ig

"PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Petitioner ‘prays that a -writ of ceftiorari issue to

review the judgments of the United States Court of

Appeals for the Fourth Circuit. entered in the cases

between the above parties on March 13, 1969 (App.

36a-39a).

- OPINIONS BELOW

- The opinion of the Court of Appeals for the Fourth

_ Circyit is reported - 408 F. 2d 842 ( EAD

° 9

1a-35a). No opinion was entered by the District Court.

The Findings of Fact and Conclusions of Law-of the

District Court are reported at 272 F. Supp. 97 (1967)

' (App. 40a-93a).

4

JURISDICTION

The judgment of the Court of Appeals for the

’ Fourth Circuit was entered on March 13,.1969 (App.

36a-39a). The jurisdiction of this Court is invoked

under Section 1254(1), Title 28, United States Code. °

QUESTIONS PRESENTED

Q) Whether the increase gn loading on deferred

and uncollected premiums constitutes income to be

included in computing gain from operations of a life

insurance company; . fs

- (2) Whether loading on deferred om uncollected

' premiums constitutes an ‘‘asset’’ within the meaning

.of Section 805¢b) (4) of the Internal Revenue Code;'

(9). Whether interest _ prepaid or charged in ad-

vance is includible in income pfior to the taxable

year in which ‘it is earned ;

(4) Whether portions of charitable contributions

of life insurance companies are deductible from gross

_ investment income in’Phase I as general expenses al-

located in part to investment expenses ;

(5) Whether the reserves established by the tax-

payer as insurer for its, BranclrOffice Managers’ Sup-

‘plemental Retirement Plan are “life insurance re-

serves’’ as defined in Section 801(b) ;

i Hereafter section numbers not otherwice identified are refer-

ences to sections. in the Internal abies: Code of 1954 eT e

to the years involved. ~

-

—

.

_ (6) Whether agents’ debit balances are used in an |

insurance trade or business so as to be ween from

“assets”? as defined in Section 805(b) (4) ?

(7) Wohther, on consolidated returns of lifegin-

surance companies, dividends distributed within the

affiliated group should be eliminated in computing

investment yield, and whethér investment in another

member of the group should be eliminated from assets

for Phase I purposes;

(8) Whether the 2% additional tax imposed by Sec-

tion 1503(a) on certain consolidated returns applied

to consolidited returns of life insurance companies;

and ¢ , ~ |

(9). Whether Section 818(a) provides that, the.

absence of contrary statutory provisions, computations

prescribed by the National Association of Insurance

Commissioners for annugl statement purposes should

be used in computing taxable income of life i insurance

companies, °

STATUTES AND REGULATIONS INVOLVED

The following statutory provisions are involved, and

_ the pertinent parts are set forth in App. 94a-112a:

Sections 11, 170, 446, 451, 801, 802, 804, 805, 809, 818,

1501, 1502, and 1503 of the Tisterna! Revenue Code of *

1954.

The following Treasury Regulations are tavolved,

and the pertinent parts are set forth in App. 112a-126a:

Regs. Sections 1.446-1, 1.451-1, 1.801-4, 1.801-5, 1.805-5,

1,809-4, 1.818-2, 1.1502-1A, 1.1502-114,’ 1. 1502-30A, and

/-1,1502-31A. »

4

STATEMENT

Jefferson Standard Life Insurance Company (Jef-

ferson) and Pilot Life Insurance Company (Pilot)

are domestic stock life insurance companies taxable

-under Part I of Subchapter L of Chapter 1 of the

Internal Revenue Code (Section 801 et seq.). (App.

41a) During 1958 and 1959 Jefferson owned all the

stock of Pilot, and the two companies filed a consoli- »

dated income tax return for each year, Jefferson acting

as agent for Pilot for consolidated return purposes.

(App. 41a-42a)

, Jefferson filed. suit for recovery of certain income

* taxes paid for each of the years 1958 and 1959, and

the Government filed a counterclaim for each such year

asserting liability for additional income taxes. e( App.

43a) ~The cases were tried in the Middle District of

North Carolina without a jury. (App. 40a) Both

parties appealed to the Court of Appeals for the ~

_ Fourth Circuit. This petition is for review of specified

portions of the judgments of the Court of Apheals.

The years involved were the first years subject to

' taxation under the Life Insurance Company Income

Tax Act of 1959, which completely ‘revised the method

-of taxation of life insurance companies and, for the ~_

first time since 1921, subjected them to tax on the

basis of an annual determination of income from all

sources. J

The material facts are sid contested, and the Court /

of Appeals did not change any of the findings of fact’

made by the District Court.

A summary of the facts with respect to each of

the issues is as follows:

. be ie

oy

land 2. Treatment pf loading on deferred and un- .

collected premiums. The gross annual premium is the

amount paid each policy year by an insured to a com-

pany for coverage. It is composed of two elements:

(1) The net valuation premium, Awhich is the annual

amount needed to pay policy claims’ over the years

according to the mortality tables and assumed rates

of interest used in writing the policy. This is the

amount placed in the life insurance reserves to cover

the company’s liability under the policy. (App. 71a)

(2) The ‘loading’’, which is the difference between .

the net valuation premium ,and the gross premium.

(App. 71a)

Life insurance companies are required to report on

the basis of a calendar year for purposes of both their ,

income tax returns and their annual statements pre-

seribed by the National Asseciation of Thsurance Com-

missioners (N.A.I.C.). It is common practice in the

life insurance ‘industry for s@me policyholders to pay

premiums in semi-annual, quarterly, or monthly in~«

‘stallments. ‘‘ Deferred premiums’”’ are fractional pre-

miums on policies with premiums payable‘in monthly,

quarterly, or semi-anmial installments which fall due

after December 31 of the calendar year.and before the

end of the current policy year. ‘‘Uncollected premi-

ums’’ are annual or installment premiums which, at

December 31 of a calendar year, have become due

but have not yet been paid.’ (App. 70a)

~

2 This issue. also involves the increase in loading on ‘‘due and

unpaid’’ premiums, which are. premiums on accident and health

policies written by Pilot which have become due and have not been

collected by December 31. Such premiums are in the nature of

“uncollected” premiums, and are treated here as coming within

the eg category of deferred and uncollected premiums. (App.

75a- 6a

Both deferred premiums and uncollected premiums

are premiums that have not been received by the plain-

tiff. Further, the company has no contractual or other

legal right to enforce their collection. “ App. 73a)

State law requires that there be added to reserves

.each year the amount of the net valuation premiums,

including the net valuation portion of the gross pre-

miums that are deferred and uncollected. (App. 71a)

Since the company has not received deferred and un-

collected premiums and has no legal claim to them

they would not normally be acerued for income tax

purposes. Notwithstanding this, it is necessary, in

order for the accounts to balance, to acerue as income.’

the net valuation portion of deferred and uncollected

premiums. Consistent with state law requiring main-

tenance of reserves, the net effect of the N.A.I-C. an-

nual statement form requires the inclusion in income

and in assets of the net valuation portion of deferred

and uncollected premiums. This is accomplished by.

‘a two-step procedure: (1) the accrual in income of

gross deferred and uncollected premiums based on an

assumption (for accounting convenience) that the full

anntal premiyms have been paid in advance; and (2)

an adjustment by which an offsetting entry is made

to eliminate the loading on such premiums. It is not

necessary to go through this two-step procedure in

order to increase assets by the amount of the net

valuation premiums. An identical result would be

reached if only the net valuation portion of deferred .

and. uncollected premiums were accrued as income.

The loading on deferred and uncollected premiums

does not enter into the computation of reserves, which

are based only on net valuation premiums. (App. 7la

and 75a)

ae ; 7

The same computations and the same figures were .

used ‘with respect to loading on deferred and uncol-

lected premiums. for purposes of the 1958 and 1959

income tax returns as were used for the annual state-

ments approved. by the N.A.I.C. that were filed by

the companies. (App. 73a) |

a

The taxpayer contended that. the increase * in load-

ing on deferred and uncollected premiums should be

excluded from income in computing gain from opera-

tions, and that the amount of loading on deferred and

uncollected premiums ‘should be excluded from assets.*

The District Court held against the taxpayer on these

questions, (App. 91a-92a) and the Court of Appeals

affirmed. (App. 23a-27a) — |

3. Unearned Interest Income. In 1957, 1958, and

1959, Jefferson and Pilot received prepayments of

interest on loans to policyholders, and on bonds, m@t-

gage loans, and collateral notes. Also, Jefferson

charged loan accounts of policyholders who did not

prepay interest on their loans on the policy anniver-.

sary date with a year’s interest in advance. When a.

loan to a policyholder was made initially, ‘the face

amount of the note included the amount lent plus

interest on that amount for one year. (App. 65a-67a)

~

Where interest had been prepaid and then the prin-

cipal of the debt was -paid, the company was obligated

to refund any unearned interest. Simila¥ly, where un-

8 The increase ipdoading is determined by subtracting the load-

ing on deferred and uncollected premiums at the end of the prior

year from the loading on such pros at the end of the current

year.

4 Under the Phase I computatfon an overstatement of assets re-

gults in an increase in the company's taxable investment income.

g°

earned interest had been added ‘to a _policyholder’s

loan account, Jefferson credited the policyholder with

any unearned interest when the loan was paid. Where

a policy loan was paid before the end of the first year

(for which interest had been included in the face

rae of the note), the unearned interest was paid

to the policyholder or his beneficiary. (App. 67a) |

For their own books, their .N.A.I.C. annual state-

ments, and the tax returns, Jefferson and Pilot, at

the close of each calendar year, treated the unearned »

portion of interest paid in advance and the unearned

portion of unpaid interest added to policy loan accounts

in advance (or included in the face amount of the

loans for the first year) as deferred items to be taken

into income in the following year or years as earned.

(App. 67a-68a) Under this method of accounting, the

interést income for a calendar year was precisely equal

‘to the interest earned during that yar for the use of

. bor rowed. funds during that year. Interest income was

required to be computed and reported in this manner -

on the N.A.I.C: annual statements. (App. 68a)

The District Court held that the full amount of in-.

terest must be reported as income in the year in which. |

it was charged in advance, whether or not actually re-

ceived, (App. 90a) and the Court of Appeals affirmed.

(App. 27a-29a )

4, Charitable Contribution Expense. Jefferson and

Pilot made charitable contributions in 1958 and 1959.

The contributions were made principally to organiza-

tions in North Carolina and particularly in the Greens-

boro-High Point area where their home offices were

located. In each year, each company allocated a por-

tion of its charitable contributions to investment ex-

penses and a portion to underwriting expenses. Jef-

9

ferson based its allocation on the ratio of employees'“>

engaged in investment functions to total employees, ~~

and Pilot based its allocation on the ratio of salaries. .

of employees engaged in investment functions to total °,

salaries. (App. 68a-69a) ,

Life insurance “companies are required to allocate

charitable contributions between investment expense

and underwriting expense on a yeasonable basis for

their N.A.LC. annual’ statements. The methods of .

allocation used by Jefferson and Pilot were consistent

with that requirement and have been accepted for many

years by the state insurance departments for. purposes

¥f the annual statements. (App. 69a-70a) The chari-

table contributions did not exceed the 5% limitations

in Section 170(b)(2). or ‘in Section 809(e) (3) (A).

(App. 69a) at

On the 1958 and 1959 tax returns, the portions of

charitable contributions that had been allocated to in-

vestment expense were deducted’ a¥ such purspant to

Section 804(c)(1) in computing taxable investment

income for Phase I. The issue is whether this treat-

ment was correct or whether the entire amount of

the charitable-contributions were deductible under Sec-

tion 809(d). in-¢omputing gain from operations for

Phase II.’ The District Court upheld taxpayer’s treat-

~ ment, (App. 91a) but the Court of Appeals reversed, ~

holding fhat no part of the chdritable contributions — +

deductions should be taken into account in computing _

taxable investment. income for Phase I. (App. 10a-

14a) ; 3 7

5. Treatment of reserves for Branch Office Managers

Retirement Plan. During 1958 and 1959 Jefferson had

in effect a pension plan for its branch office managers.

10

- (App. 57a and 62a) The. reserves for the plan were

computed on recognized mortality tables and assumed.

rates of interest and Were included in Jefferson’s regu-

lar reserve funds. (App. 6la) The reserves were

set aside to mature or liquidate future annuity claims

(App. Gla) ; they arose under annuity contracts which .

involved life contingencies at the time the reserves.

were computed (App. 614-62a) ; the reserves were re-

quired by the law of North Carolina (App..6la and

'110a-112a); they were treated on Jefferson’s. annua!

statementsin the same manner as reserves for annuity

- contracts written by Jefferson and issued to the public

generally (App. 62a-63a); and the reserves for the

Plan were approved as ‘‘life insurance reserves’’ in

three audits by state insurance departments. (Tr. 278--

279 and 348-349) Some of the managers covered under,

the plan retired and received benefits in 1958 and 1959.

(App. 62a)

A manager’s rights under the plan were forfeitable

only on death, or ceasing to be a manager or agent

of Jefferson before reaching age 65, or forming a con-

nection with another life insurance company. a

59a-60a) -

The plan did not qualify for pension plan ‘itdetmat :

under Section 401, but disqualification by the Internal .

Revenue Service was not based upon the ground that :

benefits were forfeitable under certain contingencies.

(App. 62a). Provisions for forfeiture of benefits in

the event of termination are common provisions in

pension plans, and are found in’ pension plans which |

qualify under Section. 401.

The District Court held that the reserves under¢the.

plan were not ‘life insurance reserves”’, (App. 89a):

and the Court of Appeals affirmed. (App. 32a-35a)

-

~~

1 1 o :

6. Agents’ Debit Balances. Agents’ debit balaaces §

are balances on the accounts of an insurance company”

that result from charges to the accounts of the com-

pany’s agents against future commissions. (App. 76a-_

77a) Here-the amounts arose principally from money —

advanced by Pilot to its agents to provide living ex-

penses until. their.commission income was sufficient

to support them.‘ (App. 77a-78a) No interest was

charged the agents on the balances. (App. 78a) Pilot

~~ maintained agents’ debit balances because this was

necessary to obtain and keep agents, since the company

was competing for agents with other companies who.

financed their agents on a sunilar basis. (Tr. 328)

—~ Section 805(b) (4) defities ‘‘assets’”’ (to be taken into _ =

account in computing earnings rates for Phase I) so

as to exclude assets used -by/a company “‘in carrying .

_ov-an insurance trade or business,’ On the 1958 and

‘1959 tax returns, the Pilot and Jefferson agents’ debit

balances were excluded from “assets”? for purposes of

Section 805(b) (4) on the grounds that they were used

in carrying on an insurance business. _- vant

The District Court held that these balances should

have been included i ‘assets’? as defined in Section

805(b) (4), (App. on) and the Court of Appeals.

affirmed. (App. 29a-32a) :

7. Consolidated return computations. “In 1958 and :

again in 1959, Pilot distributed $1,250,000 in dividends

to Jefferson out of its earnings and profits for the year.

(App. 46a) In the consolidated returns for 1958 and

1959, these intercompany difidends ‘were eliminated

' completely in computing taxable investment income

for Phase I of the life insurance company taxable in-

come computations, and in epmputing gain from op-

erations for Phase II. (App. 46a-48a) The-inter-

—

12

- company, investment of J effeltbn in the stock of Pilot

was. likewise eliminated from the consolidated asset

‘base from which consolidated earnings rates“were de-

rived to. determine the consolidated policy and other

contract liability requirements under Phase I. (App:

47a)

This treatment was consistent with generally ac-

cepted accounting principles of consolidation which

apply where an affiliated group composed of a parent

- corporation and its. subsidiary ¢in this case, wholly- ©

owned) file consqlidated income tax returns. (App.

- 58a) Thus, the effect of the tax return treatment was

arate divisions of\a single life’ insurance company.

(App. 56a-57a) \

The Government contended that the intercompany

« .@

“4

dividends (and the intercompany investment for Phase ;

I purposes) should bé taken into account ih the initial

computations so that, in effect, the intercompany _divi-

dends would be applied’ in part to Satisfy ‘the so-called

policyholders’ share of investment income for both.

Phase I and Phase -II purposes, ‘with only the re--

mainder of the intercompany - dividends being elimi-

nated. Thus, under.the Government’s contentions, for

the Phasé I and Phase II policyholders’ share compu-

tations, the intercompany dividends and the intercom-

pany investment were treated just’ as though Pilot

had not been included i in the consolidated tax returns.

( App: 49a-52a)

The District Court held that, for purposes of the

consolidated tax returns, the intercompany dividends

paid by Pilot to Jefferson were not«income (App.

88a) and that the intercompany investment of Jeffer-

son in the stock of Pilot was not ‘an asset (App. 89a);

and further held that the eorisolidating methods and

. + the samé.as thought Jefferson and Pilot had been sep- -

4

a.

>= %

‘ a?

ag

—

procedures on-the returns were proper. (App. 89a)

The Court.of Appeals reversed the District Court,

holding that the Government’s treatment of the inter-

company dividends was proper. (App. 6g-10a) The

Court of Appeals’ opinion was silent on the treatment

to be given thé intercompany investment by J efferson

in the ‘stock of Pilot. me's

8. Tax rate "applicable to the consolidated returns.

Starting with tax returns for.1958, the first year subject

to the 1959 Act, the Internal. Revenue Servite rede-

signed the tax return for life insurance companies to”

“eall for payment of the additional 2% tax imposed by

’ Section 1503(a) when the! return was filed as a. con-

solidated return by an affiliated group of life insur- .

ance companies., (App. 44a-45a) Section 1503(a) was

not amended. by the 1959 Act. It provided in part

that 4. . the tax impgsed under section .11(¢c) or

section 831 shall be increaséd for any. taxable year

by 2 percent 6f the consolidated taxable i income of the

affiliated group of ineludible corporations. 6 (App.

109a110a) Thgtax on life insurance companies was

; imposed. by Section 802(ay and provided that-the sur- -

tax be computed ‘*... at the rate pike wes by: section.’

11(c).’?* (App. 98a)

, . e ‘

Jefferson paid the 2% additional tax as called for--- -

e by the redesigned - return and ‘sued for its refund in

these actions in. the District Court on the gr und that

the 2% tax had.never been imposed'‘on consolidated

returns of life insurgnce companies. The’ District

Court held that the 2% tax applied (App. 88a), and

the Court of Appeals ‘affienied. (App. 20a-23a) - |

9. Use of N.AI.C. annual statement computations.

~ The, National Association’ of Irisurance Commissioners |

(N. AL C.) is a national: organization established in

1871%*that is composed of the insurance officials of the

. 7 : i :

14

states. The N.A.LC. prescribes a ilies annual

statement form that is required by law to be filed by ©

life insurance companies with, “the insurance authori-

ties of the states in which they aré organized and do

business. The N.A.L.C. also approves instructions for

completion of the form. (App. 63a) «

Jefferson and Pilot prepated and filed the annual

statement forms with the State of North Carolina,

where. both companies were organized, and with the

other states in which they did business. (App. 64a)

me it consolidated income tax , the taxpayer

treated the loading element in deferred and uncollected .

st income as they were

iN. ALLO. annual state-

premiums and unearned int

required to be treated on t

ment-¢App. 73a and 68a) ‘dilotated, a-portion of

charitabJe contributions to géWeral éxpenses as required

for the N.A.LC. annual statément (App. 69a-70a) ; and

it set up life insurance reserves for its Branch Office

Managers Supplemental Retirement Plan as required

for the N.A.LC. annual statement (App. 61a-63a)..

None of these computations was incorfsistent with ap-

plicable provisions of the Internal Revenue Code.

. The Court of Appeals did not accept the N.A.LO:

treatment for tax purposes with respect to any of

these matters. (App. 13a-ife and 2@a) «

- * REASONS FOR GRANTING THE WRIT

This case offers an opportunity for this Court to

_ panswer the most troublesome questions of interpre-

tation wader'the Life Insurance Company Income Tax —

Act of 1959. The rulings below that were adverse to

_ the taxpayer involve eight issues of interpretation un-

der es Act; and many ‘are issues that are being

igated by insurance companies. There is

“also a conflict b@een the Circuits 4s to some isues,

, . , 15

and as to some issues, the rulings below misconceived

the meanfhg of decisions of this Court.

1. (a) The Life-Ensurance Company Income Tax

Act of 1959 (the 1959 “act) raises important questions

of federal law that have not been, but, should be, set-

-tled by this Court. Definitive interpretation by thi-

Court of the Inost common issues that have arisen

under the’ 1959 Act-is badly needed to reduce the back-

log of pending litigation nd to resolve issues that are

in dispute with the Internal Revenue Service through- .

out the country. The Solicitor General recognizes

the importance of having the 1959 Act interpreted by

this Court. In his brief-in opposition, to granting cer-

tiorariegn Franklin Life Ins. Co. v. United States, 399

F. 2d 757 (7th Cir. 1968), cert. den., - US.

(1969), he said: . *

“* * * We would’ therefore not oppose certiorari

‘= even in the absence of a conflict if it appeared

that present review would facilitate the final set-

tlement of the income tax liabilities of this and

other life insuran¢e companies. But review would

not dispose of those ¢ases, sirice they involve other

-- important quesgions of statutory construction—

. most of them industry-wide issues involving sub-

““~ stantial. amounts—as well as the deferred and un- |

~*~ sveottected premiums issue."* In addition, a grant

of certiorari here well might freeze those cases in

their present status and further pos e the date

a

- **18 For example, the appeal and cross-appeal of Jefferson

Standard Life Ins. Co. v. United States, supra, argued and

submitted to the Fourth Circuit on October 30, 1968, involves

not only three of the four issués here but seven other issues

of first impression under the 1959 Act. Similarly, Occidental

Life’ Insurance Co. of California v. United States (C.D, -

Calif., Civ. No. 66-273-F) involves not only the deferred and"

uncolleeted- premium issues butaalso four other issues of first

impression. Western National Life Ins. Co. v. Commissioner.

50 T.C. No. 28, supra, still open on the Commissioner’s motion

- for reconsideration; involves at least two other important

issues besides deferred and uncollected premium issnes.”’

. *. © rt ™

-

- 16 ;

on which audits of the life insurance companies

may be closed.”’

Of the eight questions of iain under the

1959 Act as to ‘whicl? certiorari is requested in this

case, six are of industry-wide concern. These are

(1) whether the increase in loading on deferred and

uncollected premiums is income; (2) whether the

loading element in, deferred and uncollected premi-

ums should be treated as an asset; (3) the treatment

of unearned interest income; (4) whether a portion

of charitable contributions should be included in

general expenses and deducted as such for Phase I

purposes; (5) whether reserves set up for a non-

qualified pension plan are life insurance reserves ; and

(6) whether agents’ debit balances are ‘‘assets’”’ as ~~

defined in Section 805(b)(4). All these questions are

at issue in other pending tax cases of life insurance

’ companies.’ The following chart shows each of the

5 The following tax cases involving life insurance companies are

‘pending’: >

Alaska Western Life Insurance Company, Tax Court Docket

No. 3135-68. .

Allstate Life Insurance Company, Tax Court Docket Nos.

1622-66, 5414-67.

American Fidelity Life Insurance Company, Tax Court Docket

0. 4469-63.

The. ‘Andrew Jackson_;Life Insurance Company, Dist. Ct.,

’ N.D. Tex, 4

Bankers National Life Insurance Company, Tax Court Docket -

No. 655-68.

The Columbus Mutual Life Insurance Company, Tax Court

Docket No. 1540-68. _

Equitable Life Insurance Company of some, Tax Court Docket

No. 4701-68.

. Eureka Life Insurance cape of es Tax Court Docket

No. 4513-68.

Farmers & Bankers Life emacs Company, Dist. Ct., Kans.,

No. W3977.

Globe Life Insurance > Company, Dist. Ct., N.D. Ill., Civil No.-

67-C-1991. °

17 =

issues in this case which is of industry-wide interest;. -

and each of the other pending cases in which the issue |

appears, for 22 of the 29 life insurance companies

with pending tax cases. Also, as the chart shows, there

are 20 other issues in pending cases that Anvolve the

question of use of N.A.I.C. annual stateméab coinputa-

tions in determining taxable income. ~° {=

L

Group Life & Health Insurance Company, Dist. Ct., Tex.

ITT Hamilton Life Insurance Company, Court of Claims

2s Docket No. 109-68.

- Kentucky Central Life Insurapge Company, Tax Court Docket

No. 5290-67.

Lamar Life Insurance Company, Dist. Ct., S.D. Miss.

The Lyndon Life Insurance Company, Tax Court Docket No. .

901-68.

The Midland Mutual Life “Insurance Company, Tax ssaneen

Docket No. 5309-68.

National Life & Accident Insurance Company, Dist ct. ‘MD. j

Tenn., Civ. No. 4995.

"Occidental Life Insurance Company of California, Dist. Ct.,

C.D. Cal., Civ. No. 66-273-F.

The Ohio State Life Insurance Company, Tax Court Docket

No. 5971-67.

Old Line Life Insurance Company of America, Dist. Ct., E.D-

Wis., Civil No. 68-C-149.

Old Reliance Insurance Company, Court of Claims Docket Na.

324-68.

Old Security Life Insurance Company, Tax Court Docket No.

4239-64.

Pioneer Life Insurance Company, Dist. Ct., N.D. Ill.

Security Benefit Life Insurance Company, Dist. Ct., Kans.,

No. T-4444.

Southwestern Life Insurance ‘Company, Dist. Ct. Tex., Civil

No. 3-3003-A.

Stuyvesant Life Insurance Company, Tax Court Docket No.

5654-68.

United Public Life Insurance Company, Tax Court Docket No.

6857-65. ;

Washington National Insurance Company, Tax Court Docket

No. 3057-68.

- Garich Life Insurance Company, Court of ‘Claims Docket No.

225-68.

Name of Taxpayer in Pending Case

ISSUES IN PENDING TAX LITIGATION BY THE

LIFE INSURANCE INDUSTRY

Life Insurance Industry Issues ”

e

Increase in

- TOTAL

loading on ‘Loading on 3 Deduction Reserves of Agents’ deb

- deferred and - deferred and Treatment of charitable company’s | balances as

uncollected uncollected of unearned contributions pension plan as “assets “as.

premiums as premiums as ' interest as investment life insurance defined in ~

income **aanet”” = - income ex pense reserves Section 805 (b)

Columbus Mutual Life Ins. Co. x ; ¥ X= A X

Equitable Life Ins. Co. of Iowa xX x es. Se x X X

Kentucky Central Life Ins. Co. x X x

The Midland Mutual Life Ins. Co. = x = ;

National Life & Accident Ins. Co. x x x

Occidental Life Ins. Co. of Cal. ».4 x a Een

Ohio State Life Ins. Co. x x a coe. x x

Security Benefit Life Ins. Co. x x

. Washington National Ins. Co. ; p.¢ ».4

Lamar Life Ins. Co. ‘ ree -

Southwestern Life Ins. Co. = x x x

Stuyvesant Life Ins. Co. | F

United Public Life Ins. Co. _ “is ,

Pioneer Life Ins. Co. ee, ;

American Fidelity. Life Ins. Co. — ».4 x

Alaska WeStern Life Ins. Co. - X. : “% : f

Eureka Life Ins. Co. | x : } : xX

Old Line Life Ins. Co. ee he E

Allstate Life Ins. Co. RP. 4 D4 . \‘

Bankers National Life Ins. Co. ».4 . ee x

Old Reliance Ins. Co. xX : :

Old Security Life Ins. Co. x . E

18 - : 14 7 2 6

\

v

e °

oO

aa

‘ISSUES I

soll

© 2

N PENDING TAX LITIGATION-BY THE

LIFE INSURANCE INDUSTRY

Life Insurance Industry Issues

\

«<3

ending Case —

Increase in

Reserves of

Agents’ debit

Othersissues —

involving

application of .

ik

loading on Loading on ~ os : ~ Deduction N.A.I,C. annual

deferred and deferred and Treatment of charitable company’s balances as statement

uncollected uncollected of unearned contributions pensjon plan as . ‘‘assets’’ as computations

premiums as premiums as - interest as investment life insurance defined in (number of issues

income _“asset’’ income ex pense- reserves Section 805 (b) (4) in parenthesis)

ife Ins. Co. “ 3 “a x x . x X (1)

So. of Iowa x X x pa x Xx X (7)

ife Ins. Co. x x eS |

1 Life Ins. Co. x= x o +.

ident Ins. Co. ' oe x xX :

Co. of Cal. xX x - -X (1)

Co. x X eo xX x ; X (7)

' eIns. Co. - 4 x

alIns. Co. Bee Ge xX X (3)

; s ae

ns. Co. xX xX xX ; x

. Co. F 7

ns.Co. ag

| ;

uifeIns.Co. ~ xX x =

eIns.Co. X xX “,

oX x -X (1)

0. Xx

& *. =. 4 4

ife Ins. Co. 2 xX _.¢ x

i - / } dene |

is. Co. _X i

18 14 i 2 = 6 6 (20)

19°

. This case elearly meets the Solicitor General’s own.

standards for a case that would facilitate final settle-

ment of a large number of the stibstantial industry-wide

issues involving interpretation of. the 1959 Act.

(b) In holding that the amedioe in loading is in-

come, and that loading is an asset within the meaning

of Section 805(b).(4), the Court of Appeals has mis-

conceived the nature of loading and has attributed —

to it a relationship with gross premiums that demon-

strably does not exist. This misconception is manifest

in two fallacious propositions. upon which the Court

rested its opinion with si pts to these questions: ,

That deferred and anmeieed premiums are

legally accruable as income, and that hence some

‘‘deduction’’ must be found in the statute before

the loading can be eliminated; and

That the portion of the reserve equal to the net '

valuation premium has some fixed or mathematical _

relationship to gross premiums in the same sense,

for example, that a bad debt deduction has a re-

lationship to gross receipts. :

@ The Court of ‘Appeals searched for a statutory

‘‘deduction”’ for the i — in loading and concluded

that there was none.® It apparently sought a statutory

deduction on the ground that- the gross deferred and

uncoNected premiums were includible by statute in in-

come, yet there is no such statutory provision for inclu-

1p

° The Court could, however, have found a deduction for de-

ferred and uncollected: premiums as ‘‘unearned premiums’’ under

Section 809(d) (2), which provides a deduction for the net increase

. in certain reserves, including reserves for ‘‘unearned premiums’’

_ not. included in life insurance reserves. See Section 810(c) (2), re- .”

ferring to. Section 801(c) (2).

~

zs ; a nasal :

/ Sie

ea

> woh

sion. This is quite understandable, because gross de-

ferred and uncollected premiums would not be included ’:

in SLOSS premiums under accrual principles of account-

ing, since the company has not received them:and has

no right to receive them. Schlude,v. Commissioner,

372 U.S. 128 (1963). Indeed, at one point the Court.

of Appeals seeins to recognize this when, it says: ‘‘ Pre-

sumably, taxpayer is ‘not-required to include in in-

- Come ‘aniounts * «which it ‘has not received or which it

“Has no right to receive ...”’ (App. 264) It is ‘highly

significant that taxpayer did not make the concessidn ©

made by the taxpayer in the Franklin Life case to the -

effect that the intent and purpose of the Act require ©

that deferred and uncollected premiums be included

in Hicome on a gross basis." (See App. 25a.) This

“ppoint distinguishes the. Franklin ease from the case

at bar. :

If the poeeaiak | is not caine by statute = include

é

the loading on deferred and uncollected premiums in.

income but merely follows .the N.A.I-C. procedure for

convenience and to comply. with industry accounting,

it is obviously not required to find a statutory dedue-

tion to eliminate the loading element. The elimination .

_ of the loading i is merely an offsetting ace -ounting entry

or adjustment madé to prevent taxing a non-income

item, and to balance-the accounts: to reflect the fact

that the reserves. required by state law are computed

_ ona net valuation premium sian In contending ged

‘

7 This concession was giver souk: “weight by the Court in the

Franklin ease (399 F.2d at’ 760), whiche said: e

‘Taxpayer cAacedes that the intent and purpose of the Act

requite that the deferred and uncollected premiums be in-

e cluded in income on a gTOss basis. (which includes loading).

In or view that concession leaves no basis for further con-

“troversy.’’ ( cabs supplied. )

» > ; ° £

“ ¢ Pai 9

°

'@

a

wise the Government is seeking to use that part of the

N.A.LC. treatment which is useful to, i, and then ‘dis- _

carding the other part of the treattmeut by which the

corrective adjustment i is made. In accepting the Gov-_

ernment’s contentions. the Court. of Appeals admits.

that the issue as to the includability in income of the -

increase in loading ‘‘is not totally free -frem doubt.”’ >,

(App. 26a) The effect of the Court’s decision is to

subject to taxation’ amounts which the taxpayer has

_ not received and which he has no right to receive, con-

trary to all-principles of accrual accounting.

While the Commissioner, subsequenj to the years .

at issue, adopted a regulation that purports to include

gross ° deferred: and guncbllected premiums in gross

" premium income (Reg. § 1.809-4(a) (1) (i)), no .such —

. intent. can -be gleaned from the wording of. Section

_ 809(c) or its legislative: history, and, the regulation

is obviously an attempt by the Commissioner, in effect,

to legislate interstitially. , 4 |

(i) The second fallacy in Ge Court of ‘Appeals’

opinioli is that‘inclusion of loading is based upon some

assumed nelationahip between the ‘‘full annual net

valuation premium}, > and the “gross annual premiuni.’’.

(App. 27a) This ‘conclusion is unsound because the.

loading element is simply a residual amount, and this

; may be demonstrated as follows: a

Consistent with state law regarding the maintenance

of reserves, the amount ‘to be added to reserves is the

net valuation portion of the deferred ‘and. uncollected,

; premiums. ‘It is only this amount that must be in-

cluded if income to create an asset’ equivalent to! the |

reserve requirement. Ordinarily the net valuation’

premium is less than: the . gross »premium. and the

difference is the loading. See a

4 *

99 ¢ ; ory

The loading has no pertinence or samellien whee ‘

in arfiving at te amount to be added to reserves. It’

enters the picture only because it is a portion of gross

‘deferred and uncoll prémiums, and because, under )

‘the N.A.LC. requirements, the gross, premiums are *

initially taken into account as income solely for gc-

tuarjal convenience—i.e., to prevent the necessity.of ¢

multiple computations which would be involeed if re.

* serves had to be computed’ separately for. each™dif-

‘ferent premium payment method. -Thus, only one por-

tion of. the gross premiums is frtinent—the net valua-

tion premiums. To-extract this from gross premiums

the N.A.LC. procedure simply. aside the residual -

element comprising the leading portion, whiclx does ‘

not in any way enter = the computation of the '

reserved, .

‘In Western National Life Ins. Co. ¥. Commissioner, ,

-51T6. No. 81 (1969), the Tax Court held loading .,

on deférred and tincoMected »xremiums was not ineludi-

* ble in assets. There are 18 other pending cases involv-

- ing the issue of increase in loading on deferred, and

uncellected premiums as income, and there are 14 other

pendirig cases involvitig the issue of treatment of load-. -

ing on deferxed and uncollected premiums as an asset. -

(ec) The reasons for granting the writ with riapect

to the treatment-of unearned interest income on policy-

holders’ loans are, treated in part 3 of this section of

~J the petition. The question is at issue in seven other

pending cases.

(d) The ruling below ‘is erroneous in holding that .

charitable contributions were not general expenses that

» were allocable in part to investment expenses and thus

deductible in c)mputing taxable investment inedme far

Phase I. While charitable contributions are not de-

a

% “93 by

ductible as trade or business expenses under Section .

162 and are thus deductible only within the limitations

prescribed in Section 170, this does not mean that they

may not be general expenses. Section 162(b) does not

‘state that charitable contributions are not expenses;

_it states that even when they are expenses they may

not be deducted under Section 162. See the report ‘of

the Committee on Ways and Means on the Revenue

Act of 1938, which first denied corporate: charitable

‘contributions as deductions under the trade or business

_ expense deduction ma) Cong., 3rd Sess.,

HY Rept. 1860, pp. 17-18.)

The N.A.BC. annual vtahemnah requires that .chari-

table contributions be-reflected in general expenses and

that they be broken down between insurance expenses

and igvestment expenses on a reasonable basis. (App.

69a) Since the annual statement treatment is not in-

consistent with the provisions of the Code, Section

818(a), requires this treatnent for tax.purposes. ~

Thefe are’ two other pending cases involving this

issues» 7 . ’

(e) The Court Sf Appeals committed two basic

errors,in holdirfg that the reserves for the Branch

Office orp ge Supplemental’ “Retirement Plan did

not qualify.as ‘life insufaiice reserves” undér Section

801(b) aud Reg. § 1.801-4:.

First, gave controlling weight to the fact that

under tertain cireymstances some of the benefits were

ferfeitable, sweeping aside the » consideXation that tite

same thing is ‘trpe under pension plans that qualify

under Seetioiy, 40T. >, Forfejtability is a very common

provision, and if ft wéFe controlling factor in quali-

fying reserves as “‘life insurance reserves’’, few pen-

sion plans indéed would, ever be capable of qpaliigrs

\

\

oo 24

tion. It is not “irrelevant”? (App. 35a) that plans

under Section 401 can contain forfeitability provisions,

since plans under that Section are governed by even

stricter requirements than apply to unqualified plans.

During the years‘m question a number of branch office

managers were retired and received benefits under the

plan. (App. 62a) Just as in other plans, they had a .

right to continue to receive the benefits until and unless

a forfeitu® occurred under the terms of the plan.

There is no ground whatsoever for denying the plan

reserves the status of ‘‘life insurance reservés’’ when

that status is accorded to other, pension _— having

forfeitability provisions. ee

A second -error in the Court’s opinion is a misin-

terpretation of the relationship between: ‘‘life insur-

ance reserves’’. and ‘‘pension plan reserves.’’ This

error is apparent in the Court’s statement that, “It .

is hardly likely that an intelligible legislative purpose

would be served in providing that reserves for an in-_

surance company’s own pension plan may be recognized

in computing the policyholders’ share only if the plan

qualifies under § 401, if the same reserves are to be

recognizable in any event as life insurance reserves.”’

(App. 34a)

The legislative purpose becomes apparent die it is

recognized that tuere is a distinet tax advantage to

an insurance company in having a pension plan quali-

fied under Section 401 so that its reserves will be treated

as “pension plan reserves’” under Section 805( d)—an

advantage not available if the plan is not qualified, in

which case its reserves are taken into account as. life

-..dnsuranée reserves under Section 805(¢)(1). .When

a reserve falls ynder Section 805(d) the insurance ¢om-

* pany can exclude, for Phase I purposes, the total

amount of interest on it at the rate actually earned,

o— . ~

2

~

25

as contrasted to Seetten 805(c) reserves as to which

interest may be excluded only at the adjusted rate.*

(f) The Court below misconceived the meaning of

this Court’s decision in United States v. Correll, 389

U.& 299 (1967), when the Court below stated that the

°Corr€® decision was controlling on the issue of the

validity of the Treasury Regulations on the treatment

of agents’ debit balances. The question here is whether

agents’ debit balances are ‘‘assets’’ as defined in Sec-

tion 805(b) (4) or, instgad, are assets used in the insur-

ance trade or business.

Reg. § 1.805-5(a)(4) limits assets used in carrying

on an insurance trade or business, as that term is used

in Section 805(b) (4), to tangible assets, and specifically

excludes agents’ debit balances from the category of

assets used in§earrying on an insurance trade or busi-

ness. The Treasury Regulations cannot validly limit

the category of property used in carrying on an in-

- surance trade or business to tangible assets when the

statute does not do so, and this Court’s decision in the’

Correll case does not direct the lower courts to sanc-

tion such an arbitrary and illegal exercise of regulatory

' authority.

~

® The Ways and Means Committee report on the 1959 Act said,

**A larger deduction is provided under the bill with respect to in-

vestment income earned in connection with reserves accumulated

for qualified employer pension and profit-sharing plans.’’ H. Rep.

No. 34, 86th Cong., Ist Sess., 1959-2 C.B. 739. The Senate Finance

Committee report on the 1959 Act said, ‘‘The favorable treatment

- for qualified pension and profit-sharing business is believed de-

sirable in view of the fact that investment earnings of a qualified

pension or profit-sharing trust are completely exempt from tax

while they are accumulated in the trust.’’ S. Rep. No. 291, 86th

Cong., Ist Sess., 1959-2 C.B. 775. d '

26 -

Agents’ debit balances are excellent examples of

intangible assets used in the business of selling insur-

ance, since they are used to obtain and to keep the

agents whose job it is ‘to sell insurance.

There has been one decision contrary to the tax-

payer’s position ‘on this issue. Thi Was Western Na-

tional Life Insurance Co. v. Commjssioner, 50 T.C.

285 (1968).° It is not clear from its opinion that the ©

‘Tax Court appreciated that assets used in an insurance

trade or business were not ‘‘assets’’ for purposes of

Section 805(b)(4)_ even though they were assets in

every other respect. Furthermore, the taxpayer in the

Western N ational Life case apparently did not estab-

lish in the record that no interest: was char ged on the

halancek. (See App. 78a) The Tax Court did not

foreclose the possibility of a contrary decision on dif-

ferent facts, saying: -

‘« . . we cannot, on this record, conclude that re-

spondent’s regulation, sec. 1.805-5(a) (4) (i), which

specifically includes these items in assefS, is an

arbitrary and unreasonable inter pretation | of the

% statute.’’ (Emphasis supplied.) - -

This issue is involved in six other pending cases.

2. (a) There is a conflict between the. courts of ap-

+ peals over use of computations for the annual state-

ment approved by the National Association of Insur-

ance Commissioners in the computation of tax liability

of insurance companies. |

® Contrary to the opinion of the Court beJow, Franklin Life. In-

surance Co. v. United States, 67-2 U.S.T.C. § 9515 (S.D. Ill. 1967),

reversed on other issues, 399 F.2d 757 (7th Cir. 1968), cert. den.

—.ILS. — (1969), did not pitts this issue.

27

The conflict first arose in cases involving. fire and

casualty insurance companies. With respect to these.

companies, Section 832(by(1) provides that gross in-

“come means, among other items, ‘‘(A) the combined

gross pik oleae during the taxable year, from

investment income and from: underwriting income as

_ provided in this subsection, computed on the basis of

the underwriting and investment exhibit of the annual

statement approved by -the National Convention of

Insurance Commissioners, .. .’’. _Thé same rule was

contained in the 1939 Code and in prior Revenue

Acts. In Commissioner v. New Hampshire Fire In-

surance Co., 146 F. 2d 697 (1st Cir. 1945), the First

Circuit held that this Yanguage meant pretisely what

it said, and that. underwriting income should be com-

puted pn the basis of the annual statement even though

the -effect was to fail to recognize transactions with

- so-called ‘‘unadmitted companies’. In reaching this

decision the court rejected a contention by the Com-

missioner that Congress must have intended the statute

to reach all underwriting income and that to achieve

gthis purpose it intended use of the annual statement

form merely as a general guide and only insofar as, it

was not in conflict with detailed and explicit provisions

of the statute with respect to computation of under-

writing income. The court quoted with approval the

Tax Court’s opinion that the annual statement form ~

~

The Fourth Circuit followed the First Cireuit in

holding that underwriting income of fire and casualty

insurance companies should be computed on the. basis

of the annual statement. United States v. Fidelity and

/

28

Deposit’Co. of Maryland, 177 F. 24 805 (4th Cir. 1949),

rehearing den. 178 F. 2d 753 (4th Cir. 1950). ’ :

' Subsequently, the Ninth Circuit, while noting that

the decisions by the First and Fourth Circuits were

contrary to its own earlier decision in Pacific Em-

ployers. Insurance Co. v. Commissioner, 89 F. 2d 186

(9th Cir. 1937), reaffirmed its own earlier decigion in .

Pacific Insurance Co. v. United States, 188 F. 2d 571

->(9th Cir. 1951). The Second Cireuit reached the sarne

conclusion as the Ninth Circuit in Commissioner v.

General Reinsurance Corp., 190 F. 2d 148 (Lhd Cir...

1951), rev ersing a decision by the Tax Court, which

had followed its own previous decisions that had been

affirmed by the First Circuit and the Fourth Circuit

- in the eases cited above. Notwithstanding the square -

‘conflict between the First and Fourth Circuits, on the

one hand, and the Ninth and Second Circuits, on the

other hand, none of the parties petthoned this Court

- to grant. certiorari. Go

~

Substantially the sme issue is raised by the lan-

guage of Section 818(a), as added by the A959 Act:

(a) Method of Accounting. —All co putations. |

entering into the determination of thé taxes im-

_ posed by this part shall be made—

(1): eunder an accrual method of accounting,

or

(2) to the extent permitted under regulations

prescribed by the Secretary or his delegate,

under a combination of an accrual method of

accounting with any,other method permitted by.

this chapter (other than the cash receipts and

disbursements method).

Except as provided in the icindiing ‘sentence, all

such computations shall be made in a manner con-

29

sistent with the manner required for purposes of ©

the annual statement approved by the National

Association of Insurance Commissioners.’’

2

The annual statement computations are pertinent to

five of the issues in this case: (1) whether an increase

in loading on deferred and uncollected premiums is

income; (2) whether the loading element in such

premiums should be treated as an asset; (3) the treat-

ment of unearned interest income; (4) whether A. por-

tion of charitable contributions should be included in

general expenses and deducted as such for Phase I

purposes; and (5) whether reserves set up for a Branch

“Office Managers Supplemental Retirement Plan were,”

‘life insurance reserves.”? The Court below refused

to follow the annual statement computations on these

five issues, thus ‘aligning ,jitself with the Ninth and

Second Cir cuits on the role of annual statement com-

_ putations. Strangely, the opinion of the Court of Ap-

peals below does not refer to the earlier contrary posi-.. ~

tion of the Fourth Circuit in the Fidelity and Deposit °

Co. of Maryland ease.

This i is the first time the conflict between the courts

of ‘appeals over the meaning’ of the references in the

Internal Revenue. Code to annual statement computa-

tions has been br ought before this Court. We submit

that it is an important question of interpretation of

federal tax law that should be resolved by this Court,

_(b) A decision by this Court on the extent to which

N. A.I.C. annual statement computations should be

used will resolve the largest area of conflict between

taxpayers and the Government over interpretation of

the 1959 Act. Counsel for. six of the "3 pending’ ‘tax

suits by life insurance companies involving interpreta-

tion of the 1959 Act reported that they had issues in-

30

volving the question of whether or not N.A.I.C.‘annual

statement computations should be used in computing

taxable income in addition to the issues in this case.

They reported 20 such additional issues.

3. (a) In deciding the issue mvolving tNuing of re- .

porting of unearned interest income, the Court below

-, misconceived the meaning of this Coutt’s decisions in

Schlude v. Commissioner, 372 U.S. 128 (1963), Ameri-

can Automobile Association v. United States, 367 U.S.

687 (1961), and Automobile. Club of Michigan v. Com-

missioner, 353 U.S. 180 (1957). This Court’s decisions

in those.casesS did not establish an absolute rule that

all aecrual basis taxpayers must return all prepaid

receipts in income in the year received. In each case,

this Court was content to approve in the particular case

the Commissioner’s exercise of his authority under

Section 446(b) and Reg. § 1.446-1 to reject the tax-

* payer’s accounting method and to include the prepaid

amounts in income. .In each case, this-Court carefully |

- pointed out flaws in the method used by the taxpayer

to allocate advance receipts on a when-earned basis,

showing i in each case. that the income allocation by the

taxpayer=did not reflect with complete accuracy , the

performance of the services by, which the income “hs y

earned.

The. Court below ruled that the Me i was re-,*

quired to_report in income interest paid in advance on

loans to policyholders that would: not be earned until,

" a‘later year and that would have to be rebated if the

principal amgunt of the loan was prepaid. The Court —

below said Franklin Life Insurance Company v.

United States, 399 F. 2k 757 ( 7th Cir. 1968), cert. den.

US. (1969), was dispositive of the issue and

also referred to the decision in the Schlude case. (App.

27a and 29a) .Lhe decision of the Seventh Cirguit in

‘@

Pa rs

‘ ° x ‘ i

Se : :

: 5 °

31 e

the Franklin Life case, | in he relied upon this Court’s

decisions in the Schlude and American Autemobile ~

Association eases. In both the instant éase and the

Franklin Life case the taxpayer’s method .of account-

ing was rejected without any showing by the Commis-

* sioner that the taxpayer had failed accurately to re-

flect income. Thus, the decisions of this Court, in —

cases ‘where the Court was careful to explain how the

-Commissioner’s action in oyerturning the taxpayer’s ° :

accounting method was correct under the circum-

stances, have been used as author ity for blind, auto-

matie rejection of an established method of account-

- ing for prepaid interest income without any inquiry as

to the acctracy with which the taxpayer’s method of

accounting reflected the services rendered in. 1 earning .

the income. .

The basic flaw in the methods of accounting rejected

in the Schlude, American Automobile Association, and

Automobile Club’ of Michigan cases was that the’ pre-

paid amounts that were. deferred by those taxpayers

could not be specifically related in each instance to

services ‘to be performed subsequent to the year of

receipt. The method of accounting for prepaid inter- ©

est income by the taxpayer here does ‘not fail this test.

The service performed here was the use of money*and

the charge for the service performed is related pre-

cisely to the passage -of time. Consequently, no esti-

mates and no speculation are involved. The taxpayer’ s

method of accounting for unearned interest income

‘ precisely measured the services per formed, and, in-.

_¥ deed, the Government has not contended : otherwise.

Thus, this case offers to this Court a perfect oppor-

tunity. to define the limits of the Schlude case or, if the

Court now wishes to make the reporting of prepaid

>

é

32

income an absolute rule for all circumstances, this case -

. offers the Court a perfect opportunity to expand the

“ doctrine of the Schlude case to do so.

(b) ‘here is a conflict between the courts of appeals

as to vhether- or not this Court’s decisions prescribe

an invar ‘iable rule that income must be reported when

received in all cases. The conflict is between, on the .

one hand, the decision by the Fourth ‘Cireuit in thig?"

> ease, the decision by the Seventh Circuit inthe FF ank-"~

~ lin Life ease, and the decision by the Sixth Cireultyjn

Hagan Advertising Displays, Inc. v. Gommissioner, —

407 F. 2d 1105 (6th Cir. 1969), and, on th other hand,

the. decision by the Seventh Circuit in Artnell Com-

: “pany V. Commissioner, 400 °F. 2d 981 (7th Cir. 1968).

_ The Artnell, case’ involved the issue of whether a

; predecessor corporation, Chicago Witite Sox, Inc., was

taxable on revenues it had received in advance from

the sale of tickets. to baseball games that had: not béen

_ played, from the sale-of broadcasting and television

rights to such: baseball games, ang *from the sale of

~ geason parking books when its taxable year (which

. normally would have run to October 31) ended with

its liquidation on May 31, during the baseball season.

The Seventh Circuit held that the Tax’ Court had

erred in deciding that these revenues were income

when received, regardless of the merits of the method -

of accounting employed to allocate ghe revenues be-

tween the period before and the period after the close

of the taxable.year on May 31. ~- The cause, was re-

-manded to the Tax Court to determine whether ‘the

. method of accounting used by dhicago White Sox, Ine. -

did clearly reflect its inicome in its final, seven month

taxable year.

-

o~

. 93 ee

Both the Aitnell case and the Franklin Life case ,

-wére decided by the Seventh Circuit in the same year.

‘They were decided by different panels of judges, and:

‘ neither opinion refers to the other case. We submit

that they are flatly in conflict with one another. ~~

_ The opyion of the Sixth Circuit.in the Hagan Ad-

vertising Displays case recognizes the conflict with the

‘Seventh Circuit’s decision-in the Artnell case, stating

in a footnote; ‘To the extent Artnell Co. v. Commis-

sioner, 400 F. 2d 981 (7th Cir. 1968), is inconsistént

with our decision, we decline to follow it.” ?

This Court denied a petition for certiorari by the

_ taxpayer in the Franklin Life case. The Government

_ did not request certiorari in the Artnell case. While

' distinctions can be drawn between, the A%tnell case -

and the instant case, these are distinctions without a°

difference in. principle. If anything, the taxpayer

heye can make a stronger case than the taxpayer in.

the Artnéll case for acceptance -of the taxpayer’s

method: of accounting for prepaid income. :

4. (a). The ruling below on the issue of how to treat

intercompany dividends in. computing consolidated.

0

taxable incomé of an affiliated group of life insurance _

‘companies misconceives the ate of this Court’s

decision in United States v. Atlus\Insuranée Co., 381

U:S. 233 (1965). It is based upon a mistaken analogy

to a different question of interpretation considered in

the Atlas case. — * pos area

The issue in.the Atlas case sas how to interpret Sec-

* tion 804(a)(6) and Section’ 809(b) (4). Those provi- :

sions provided that if application of the definition of ~

taxable investment income or gain from operations

.. resulted in imposition of taxes on tax-exempt interest,

~

= > %.

, , )

ey

partially tax-exempt interest, or,any amount of divi-

dends received which was allowed as a deduction under

Sections 243, 244, or 245, adjustments should be made

to prevent such imposition.’ This Court “held that,

where no special cireumstances were shown, these pro-

visions did not mean that no part of the policyholders’

share of investment yield could ” satisfied out of tax-

exempt interest income. ‘ .

The Atlas case did not involve intercompany divi-

., dends—that is, dividends distributed from a subsid-.

_iary company to its parent company in a_year for

. Which the subsidiary and the parent filed a consoli-

dated return. Consequently, the Atlas case did ft in-

volve the accounting treatment of intéreompany trans-

fers among affiliates reporting a single taxable income

figure on a consolidated return, Furthermore, such

interéompany dividends are not eoyered by Sections

804 (a) (6), and 809(b) (4). 4

Since it- did not involve consolidétéd . returns, the

decision in the Atlas case did not, of course, involve the

question of whether or not fhe explicit provisions of

, the consolidated return regulations for elimination of

‘intercompany dividends’ should be ignored. Instead,

the Atlas case involved whether or not items of income

should be allocated between a company’s share and a

~ policyholders’ share. A dividend distribution within a*

group of affiliates making a consolidated return is not

‘an item of income for the consolidated reporting unit

* under any acéounting theory. (App. 53a) Nor is it

. an item of incgnte for tax purposes; since the consoli-

: dated returti regulations provide, explicitly and with-

+ — out exceptien, for’ its elimination. Reg. § 1. 1502-31A

es (0) )

‘t te

s

. ' 35. : a .

‘The ruling below, by requiring a dividend distrib-

uted within the affiliated group to’bear a portion of

the policyholders’ share, satisfies a ‘portion of the ,

policyholders’ share out of investment incdme that ‘is

being taxed to the group on the same consolidated

return. (This was. Finding of Fact No. 55 of the Dis-

trict Court, which was-not disturbed by the Court of

Appeals. ) (App. 56a) Thisoecurs because the divi-

dend is paid-from current earnings and profits of the

subsidiary, which is the compawy’s share of its gain

’ from operations for the year, as is iustrated by the

following example of the are of the Phase IT

tax computation:

For 1958 the effect of the — made by

the Revenue Service was to meet $635,069.00 of

_ the required ‘interest requirements for Jefferson

(the parent company) out of the $1,250,000.00 of

_ dividends received from Pilot (the subsidiary).

Since the entire $1,250,000.00 was distributed out

of the company’s share of Pilot’s gain from op-.,

erations, treating $635,069.00 as satisfying re- ~- -

quired interest of Jeffersén meant that the re- e

quired interest of the affiliated group (consisting

of Jefferson and Pilot) was being satisfied to that

- extent out’ of investment income that was already

_ being tar¢d to the group for the same year on the

“same taz return. ~

‘

Thus, the ruling below would tax investment ineome

set aside under the 1959 Act computations to satisfy

obligations of policyholders—contrary to the 1959 Act

and to this 2 agile interpretation of it in the Atlas

“ease:

“* * * In arriving at taxable investment, jncome

and gain from operations, the 1959 Act, consistent

bad 7

’ -_—_ ,

.

. .

‘ | 36 ; -

with prior law in this regard, recognizes that life

insurance companies are required by law to main-

tain policyholders reserves to meet future claims,

that they normally add to tliese reserves a

portion of their investment income and that these

annual reserve increments should not be subjected

to tar. * *.*” (381 U.S. 233, 235-236) (Em-

phasis added) .— _"

(b) The ruling below is in conflict with deeisions of

the Second Cirgnit that the interpretation of a statute

contained in the consolidated return regulations, must

be accepted ‘unless inconsistent with the statute. e

consolidated return regulations are not ordinary, inter

pretative regulations. Instead, they are ‘‘legislative”’

regulations. Section 1502. 8S. Rep. No. 960, 70th Cong.,

Ist Sess., p. 15 (1928), 1939-1 C.B. (Part IT) 419. They

are applicable only if all the corporations that are mem- -

bers of the affiliated group consent to them, in the

form in which they are prescribed prior to the last

_ day for filing the return. Reg. § 1.1502-1A.- The con-

sent is accomplished by making the consolidated re-

turn. Section 1501.

Broad‘regulatory authority over consolidated ie a

computations, accomplished through the mechafiism of

taxpayer consent to the ‘regulations, was deyised in

1928 as a solntion for the tremendous volume of litiga-

tion that had plagued administration of consolidated .

returns from their beginning in 1917. The device of

broad xegulatory authority through consent regula- -

- tions has largely accomplished its. purpose of minimiz- ~Y

‘ing litigation and providing certainty. Broad regula-

tory authority under consent régulations is a two-way

bargain, however, and taxpayers are entitled to rely on —

the plain meaning of the consolidated return regula-

tions to which they have consented. That is at the

heart ¢ the taxpayer’s epntention here.

+

37 ies

The role of the consolidated return regulations and

the extent to which taxpayers may rely on them are im-

portant questions of federa] law, worthy of this Court’s

attention. Use of consolidated returns has increased

sharply. For 1964 consolidated returns accounted for

32% of the income tax reported by all corporations.

They were filed for nearly 7,500 parent corporations

with 36,400 subsidiaries. |

The consolidated return regulations appli ‘able to the

years involved in this case provided explicitly and with-

out exception for the elimination of intercompany diyi-

dends. - Reg. § 1.1502-31A(b)(1)(i). (The current

consolidated return regulations still provide for elimi-

nation of all intercompany dividends, though they were

completely overhauled and revised subsequent to /the.

1959 Act and subsequent to this Court’s decision in/ the

the regulations provide clearly that the intercompany

dividend elimination is to, take place at the outset, be- —

- fore any separate company computations. Rev. Rul.

60-289, 1960-2 C.B. 268, and G. C.M. 15599, XTV-2

. OB. 240.

The Court of Appeals for the Second Ctreu t has

held on two occasions that the interpretation of a\stat-

ute by the consolidated return regulations must

cepted unless it is inconsistent with the -statute.

American Trans-Ocean Na vigation Corp. v. Com 1is-

sioner, 229 F. 2d 97 (2nd ye 1956), and American

Water Works Co., Inc. v. Commissioner, 243 F. \2d.

550 (2nd Cir. 1957). The ruling below is in conflict

with these decisions.”

. » The opinion halon «does not even Songuhie. 0 the special role

of the consolidated return ee

q

*

oe

-

¥

38

5. (a) In ruling that the additional 2% tax imposed

by Section 1503(a) applied to consolidated returns filed

by an affiliated group of life insurance companies, the

Court below has enlarged a tax-imposing statute, in

conflict with the applicable decisions of this Court.

A tax-imposing statute must be interpreted precisely

according to its language. The provisions of an in-

come tax statute are not to be extended by implications

beyond the clear import of the language used. Gould

v. Gould, 245 U.S.:151 (1917). See also Smietanka v.

First Trust & Sav. Bank, 257 U.S2602 (1922) ; United

States v. Merriam, 263 U.S. 179 (1923). It is beyond

the power of the courts to enlarge upon or extend the

scope of a tax-imposing statute to subjects not covered

by the: law. Iselin v. United States, 270 U.S. 245

(1926). McFeely v. Commissioner, 296 U.S.. 102

(1935).

«=: In United States v. Leslie Salt Co., 350 U.S. 383

(1956), in construing the provisions of a statute im-

posing a documentary stamp tax, the Court said, “We

must deal with the statute as we find it,...” Rei-

necke vy. Gardner, 277 U.S. 239 (1928), \illustrates the

‘rule. ‘

The Court below cited statements showing a gen-

eral Congressional intent in enaeting the 1959 Act to

tax life insurance companies as dthér corporations

were taxed."’ (App. 224) On the basis of these state-

ments, it decided that Congress intended to impose the

2% tax on consolidated returns by life insfirance com-

panies when it enacted the 1959 Act, though no taz-

imposing language for the 2% tar was written into the

1 In fact, some other gorporations were not subject to the 2%

tax.

ee

39

law in 1959." Such an approach to statutory inter-

pretation is contrary-to McF cely v. Commissioner, 296

U.S: 102 (1935), where this Court refused to alter the

‘‘nlain meaning”’ previously attributed to a provision

(relating to holding period) that had been in effect

under earlier Revenue Acts in order to make it,con-

, sistent with a new provision (relating to basis) when

the language of the holding period provision was re-

enacted without change. This Court:said:

‘‘Under-these circumstances we ought not to de-

part from the plain meaning of the section in an

effort to bring about a uniformity which it is

claimed Congress intended but failed to express,”’

(b) The theory on which the Court below decided

the 2% consolidated return tax issue is contrary to a

longstanding administrative interpretafon of Section

503(a), and if it is correct, then thousands of other

affiliated groups of corporations have overpaid the

2%, tax." The Court below said, ‘‘We concludg that.

the only reasonablefoverall interpretation of the statu-.

tory language isthat when the surtar imposed by § 11

12 From the opinion of the Court below, it apparently felt it nec-

essary to enlarge the tax-imposing statute to apply the 2% tax to

life insurance companies filing consolidated returns in order to.

avoid a conclusion that the tax would not apply to ordinary

business corporationis filing consolidated returns. (App. 21a) The

Court below was not really faced with this dilemma. The difference

between the words ‘‘computed at the rate provided in section

’ 11(¢)’’ in Section 802(a)(1) and the words ‘‘a surtax comprfted

under subsection (c)’’ in Section 11(a) is suffi¢ient to save the tax

for ordinary business corporations:

13 See United States v. Leslie Salt Co., supra, where this Court

said, ‘‘.*. . against the Treasury’s prior longstanding and con-

sistent administrative interpretation its more.recent ad hoc con-

tention as to how the statute should be construed cannot Stand.”

(Page 396)

“

on ordinary business: corporations ‘was increased by

§ 1503, that increasé- was equally applicable to life

insurance companies by virtue of the provisions *of

§ 802(a)(1).”” (Emphasis added) (App. 22a) This

_ interpretation flatly contradicts the position that was

taken by the Internal Revenue Service in calculating

~ . the base to which the 2% tax should apply in the: case

_ of ordinary business corporations.

The Revenue Service ‘has ruled (correctly, in our

opinion) that the 2% tax was a separate tax—not an

fnerease in the once imposed by Section 11. Conse-

quently, the corporate income tax returng were de-

signed by the Revenue Service to apply the 2% tax to

the entire consolidated taxable income of ordinary busi-

ness corporations filing consolidated returns, without —

> a $25,000 surtax: exemption. If the 2% tax was an in-

trease in the surtax it would not ae to the first

-“ $95,000 of consolidated taxable inconie, since the first

$25,000. was.exempt from surtax. Im explaining its

~ position in Rev. Rul. 58-246, 1958-1 C.B. 339, the’Reve-

nue Serwice said, ‘‘Such tax [the 2%, tax] is imposed

in addjtion to the surtax otherwise imposed on such

corpoyations under seetiool AIC of the Code with

respect to taxable income which exceeds -$25,000.”” .

If the Court below is correct that the 2% tax was an

inerease in the surtax, then a sum vastly in excess of

the amount at issue here has been collected illega nd 5

~ from other corporations over the years. ‘No taxp |

+ has contested the Revenue Service’s ‘position in ak. .

and most of the returns on which the 2% tax was im-

_ .- posed on the first $25,000 are probably nee cee by ..

the statute of limitations, though some returns’ being

“processed administratively are still open for refund on

this point. More syaisdosants de if the interpretation of

& ~

\

41

_ the 2%, tax in this é¢ase by the Court. below is. allowed

to stand, taxpayers generally who have paid the 2%

tax on income not subject to surtax may well feel that

| the Revenue Service has dealt with them in bad faith. |

pth CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully 9 ja

2Frep W. PEew ~

1700 Pennsylvania Avenue, N. W.,

Washington, D.,C. 20006

Wituram J. Apams, Jr.

611 Jefferson Standard Building

Greensboro, North Carol ,27402

Cuares G. Powztt, JR. -

Jefferson Standard Building

“Greensboro, North Carolina 27402

° ' Attorneys for Petitioner

Of Counsel:

Mitier & CHEVALIER

1700 Pennsylvania Avenue, N. W..

Washington, D. C. 20006: :

°

ADAMS, KLEEMEIER, Hacan,

Hassan & Fouts an

- 611 Jefferson Standard Building Ae, ie

Greensboro, North Carolina 27402

June, 1969

aa om, |

—-*

wl

° ss ef"