TAXATION - FEDERAL INCOME TAX - EXEMPTION OF LIFE INSURANCE PROCEEDS WHEN PAID IN THE FORM OF ANNUITY

Authors

Spencer E. Irons, University of Michigan Law SchoolFollow

Abstract

A taxpayer was the beneficiary of life insurance policies which required the insurance company to make fifty annual payments of $2,000 each. At the death of the insured in 1917, the commuted value of this obligation was $53,000. Prior to 1934, the taxpayer had received seventeen payments, aggregating $45,473.40, no part of which had been reported as income. For the year 1934, the taxpayer received $2,581.40, of which $2,000 was the annual payment, and $581.40 was an "excess interest" dividend. He again failed to include any of the amount in his gross income. The commissioner determined that under the Revenue Act of 1934 $53,000 was the total amount to be exempted under the policy as a payment "by reason of the death of the insured." Since $45,473.40 had already been received by the beneficiary, only $7,526.60 of future payments would be exempt, and this sum, spread evenly over the remaining twenty-three years of the annuity, would provide an exemption of only $228.08 per year. The board of tax appeals upheld the commissioner as to the $581.40, but reversed as to the $2,000, holding the latter amount entirely exempt on the ground that the amount arising from the death of the insured was $100,000. On appeal to the circuit court of appeals, held the treasury regulation on which the commissioner relied is invalid and the board's determination of exemption should be affirmed. Commissioner of Internal Revenue v. Winslow, (C. C. A. 1st, 1940) 113 F. (2d) 418.

Recommended Citation

Spencer E. Irons, TAXATION - FEDERAL INCOME TAX - EXEMPTION OF LIFE INSURANCE PROCEEDS WHEN PAID IN THE FORM OF ANNUITY, 39 Mich. L. Rev. 493 (1941).
Available at: https://repository.law.umich.edu/mlr/vol39/iss3/20