Castner Garage, Limited v. CommissionerUniversal Motor Company v. Commissioner

Island Securities, Limited, A Dissolved Corporation v. Commissioner

43 B.T.A. 1, acq. 1941-1 Cumm. Bull. 2

Kala Walton

TX 8020 4:45 – 7:30 pm

Wednesday, June 13, 2007

Facts

• Charles C. Pittam owned majority of the outstanding capital stock of Island

• Island owned a majority of the stock in Castner and Universal

• Remaining stock owned by Pittam’s brother-in-law, officers, or employees

• Four Insurance policies (life, accident, and health) procured for President Charles C. Pittam (prior to 1930)– Policies acquired to strengthen credit and for collateral

purposes– Premiums were paid by businesses (beneficiaries) and

Pittam

Facts

• Pittam was paid salaries from each business prior to disability

• Insured Pittam became disabled; income paid to beneficiaries– Income was reported on amounts in excess of

premiums paid (based on §22 (b)(5))

• All policies were assigned to the insured on May 23, 1936

Tax Commissioner brought action against taxpayers for payment of tax deficiencies.

Issue

• Whether and to What extent the petitioners are taxable upon amounts received by them in 1935 and 1936 from the Prudential Insurance Company of America as disability payments under policies of combined life, health, and accident insurance upon their president, Charles C. Pittam

Ruling• Section 22(b)(5) does not limit the gross income

exemption of compensation to only individuals; corporations are included; therefore the amounts received by petitioners can be excluded from gross income

Rule• Section 22(b)(5), Revenue Acts of 1934 and

1935Compensation for injuries or sickness. Amounts received, through accident or health insurance or under workmen’s compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.

Conclusion/Reasoning

Section 22(b)(5) is general in its application and is not limited so as to exclude corporations, such as these, which have insurable interests