Appeal from the District Court of the United States for the District of New Jersey; Thomas Glynn Walker, Judge.
Before BIGGS, MARIS, and JONES, Circuit Judges.
These appeals grow out of a suit by the plaintiff taxpayer to recover sums paid former Internal Revenue Collectors as capital stock taxes, plus penalties and interest, for the years ending June 30, 1933, to June 30, 1937, both inclusive, under Section 215 of the National Industrial Recovery Act, 48 Stat. 195, 207, and similar provisions of subsequent Revenue Acts.*fn1 The plaintiff's right to the recovery sought depends upon the merit of its claims to exemption. It alleges that (1) it was an insurance company, subject as such to income tax liability under Section 204 of the Revenue Act of 1932, 26 U.S.C.A. Int. Rev. Acts, page 548, and the similar provisions of subsequent Revenue Acts during the taxable years in question, and that (2) it was not carrying on or doing business during the taxable years, and contends that it was therefore relieved by the revenue laws of liability for the capital stock tax.
Section 215 of the National Industrial Recovery Act and similar provisions of the material subsequent Revenue Acts provide that the capital stock taxes thereby imposed shall not apply "to any insurance company subject to the tax imposed by [various sections of the Revenue Acts providing for the taxation of the net income of different kinds of insurance companies]" or "to any domestic corporation * * * if it did not carry on or do business [during specified portions of the respective taxable years]."
The court below, to which the case was tried without a jury, found that "the greater part of [the plaintiff's] income during the years in controversy was derived from non-insurance sources." [42 F.Supp. 844, 847.] The court thereupon concluded as a matter of law that the "Plaintiff * * * failed to sustain its burden of proving that it was entitled to have its income tax liability determined under the provisions of the federal revenue laws applicable to insurance companies."
The trial court also found, however, that the plaintiff did not carry on or do business after March 6, 1933. This finding automatically excluded the plaintiff from having done business during the critical periods specified by the relevant statutory provisions. But the court held that, inasmuch as the latter ground had not been assigned by the taxpayer as a basis for the claim for refund which it had filed with the Commissioner, recovery was necessarily to be limited to the years not barred by the statute of limitations, viz., the years ending June 30, 1935, June 30, 1936, and June 30, 1937, or, in other words, to the years for which an amended or supplemental claim for refund might yet be filed. The court entered judgment for the plaintiff accordingly and both parties have appealed.
The plaintiff assigns for error the trial court's failure to award it recovery on the ground that it was an insurance company exempt from the capital stock tax during all of the years (five) in controversy, while the appellant defendants assign for error the action of the court below in allowing the plaintiff a recovery in part on a basis not set forth in the claim for refund as filed with the Commissioner.
Neither Section 215 of the National Industrial Recovery Act nor the similar provisions in the subsequent revenue laws define an "insurance company". Nor do they specify any criteria for determining the existence of that status. The burden of establishing clearly that a particular corporation is an insurance company within the meaning of the revenue laws rests upon the taxpayer so asserting. Unless that burden be met, the company must be held liable for the capital stock tax as in the case of the ordinary corporation. Bowers v. Lawyers' Mortgage Co., 285 U.S. 182, 187, 52 S. Ct. 350, 76 L. Ed. 690. While the name, charter powers and subjection to state insurance laws are of significance in discovering the character of business which a corporation is authorized to conduct and intends to carry on, in the final analysis it is the business actually done during the years under inquiry which determines whether the subject company is taxable as an insurance company. Bowers v. Lawyers Mortgage Co., supra, 285 U.S. at page 188, 52 S. Ct. 350, 76 L. Ed. 690, citing United States v. Phellis, 257 U.S. 156, 168, 42 S. Ct. 63, 66 L. Ed. 180, and Weiss v. Stearn, 265 U.S. 242, 254, 44 S. Ct. 490, 68 L. Ed. 1001.
Giving full effect, therefore, to the trial court's findings with respect to the more formal indicia afforded by the purposes and powers of the taxpayer corporation, we pass to a consideration of the business it actually conducted and the sources and character of its income receipts. In passing, it may be conceded that the business of guaranteeing the payment of principal and interest of mortgage loans, which the taxpayer in this case was empowered to, and did, perform, constituted insurance business. United States v. Home Title Insurance Co., 285 U.S. 191, 195, 52 S. Ct. 319, 76 L. Ed. 695. But the question still remains whether the plaintiff derived the principal portion of its income during the taxable years in question from its insurance business or from investments or other sources unrelated to the business of insuring.
Schedules segregating and identifying the amounts and sources of the taxpayer's various income receipts for the years in question were put in evidence at trial. As to the figures and descriptions of the several items, the contesting parties are for the most part in agreement. The important cleavage between them arises in respect of the proper allocation of the various items as between insurance income and non-insurance income. Thus the taxpayer would include as insurance income eight items*fn2 (exclusive of receipts from underwriting) which, according to the defendants' contention, cover non-insurance income. These same income items are set forth for each of the years in question, but there is no need for the purposes of our present problem to examine them separately as the amounts do not vary sufficiently from year to year to have any apreciable effect upon the issue as to what portion of the taxpayer's income was insurance income and what portion was non-insurance income.
From the record in this case it is quite apparent that the plaintiff, in order to show that the greater portion of its income was derived from its insurance business, finds it necessary to include as insurance income the income from its relatively large invested capital, which was many times the reserve required of it by the New Jersey insurance laws to which it was subject.*fn3 The particular items of income which the taxpayer would so include as insurance income are from sources normally incident to the business of investing or lending money; and where the income of a taxpayer is derived primarily from such sources the company is not an insurance company within the meaning of the revenue laws here under consideration. Bowers v. Lawyers Mortgage Co., supra, 285 U.S. at pages 188-190, 52 S. Ct. 350, 76 L. Ed. 690. The proofs in this case fail to establish the basis for any different conclusion. The trial judge was therefore warranted in finding that the greater portion of the taxpayer's income was derived from non-insurance sources and in concluding that the plaintiff was not taxable as an insurance company during the years in controversy. That the taxpayer was not exempt from the capital stock tax followed as a matter of specific statutory prescription.
The defendants, as cross-appellants, contend that the court below was without jurisdiction of the plaintiff's suit insofar as the claims for refund were based on the allegation that the plaintiff was not doing business during the years in question.
Section 3772 of the Internal Revenue Code, 26 U.S.C.A. Int. Rev. Code, § 3772, provides that no suit shall be maintained to recover taxes alleged to have been erroneously or illegally assessed until a claim for refund has been duly filed with the Commissioner in accordance with the provisions of the pertinent law in such regard 3, provides that claims for refund shall be made on a form prescribed and that the gated. Treasury Regulations 86, Art. 3223, provides that claims for orefund shall be made on a form prescribed and that the claim "must set forth in detail and under oath each ground upon which a refund is claimed, and facts sufficient to apprise the Commissioner of the exact basis thereof." Section 3313 of the Internal Revenue Code, ...