The opinion of the court was delivered by: FOLLMER
This is an action to recover $ 50,390.90 paid as excess profits tax and interest for the year 1944. The sole issue is whether a dividend of $ 53,290 received by the taxpayer from its insurer, Metropolitan Life Insurance Company, accrued as income to the taxpayer in 1946 or 1947.
Jurisdiction is not questioned and the following facts have been stipulated.
At all pertinent times plaintiff kept its books and filed its Federal income and excess profits tax returns on the accrual method of accounting.
On August 19, 1936, plaintiff and Metropolitan Life Insurance Company (hereinafter referred to as 'Metropolitan') entered into a contract of insurance designated Group Policy No. 7648-GLH. Thereafter said policy was amended from time to time, but except as specifically noted hereinafter, none of such amendments are material to the present controversy.
On May 7, 1942, plaintiff and Metropolitan entered into a Supplementary Agreement extending the life insurance coverage of Group Policy No. 7648-GLH to cover employees of plaintiff entering into 'war service' (as defined therein). Said Supplementary Agreement was attached to and made a part of Group Policy No. 7648-GLH by simultaneous amendment to the latter.
On November 7, 1945, Group Policy No. 7648-GLH was further amended by deleting therefrom, effective September 30, 1945, the Supplementary Agreement referred to in the preceding paragraph.
On June 25, 1946, Metropolitan's Board of Directors adopted a resolution to the effect that the available balance, if any, as of September 1, 1946, of the special war risk insurance reserve be returned to the policyholders as soon after September 1, 1946, as practicable.
In a letter to the plaintiff dated January 14, 1947, Metropolitan explained why it was returning $ 53,290 to the plaintiff and enclosed a check for that amount bearing the same date.
Plaintiff was not advised by Metropolitan of the action taken by its Board of Directors on June 25, 1946, and had no knowledge of Metropolitan's determination of the amount refundable or of the issuance of the refund check prior to the receipt by the plaintiff after January 14, 1947, of the aforesaid check and transmittal letter. Plaintiff on its books did not accrue the refund of $ 53,290 as income until after the check and transmittal letter had been received.
Plaintiff included said refund of $ 53,290 in taxable income in its corporation income tax return for the taxable year 1947 and paid tax thereon. Upon examination of plaintiff's claims for refund of excess profits tax for the taxable year 1944, the Commissioner of Internal Revenue determined that the said refund of $ 53,290 accrued as income to plaintiff during the taxable year 1946. Accordingly the Commissioner decreased plaintiff's net operating loss for the taxable year 1946 in the amount of $ 53,290, decreasing the net operating loss carry-back from the taxable year 1946 to the taxable year 1944 and the amount of the net operating loss deduction for the taxable year 1944 accordingly.
On October 15, 1953, plaintiff timely filed with the District Director of Internal Revenue, Philadelphia, Pennsylvania, an amended and supplemental claim for refund of corporation excess profits tax for the taxable year 1944 in the amount of $ 50,390.90. Said claim for refund incorporated by reference plaintiff's prior claims for refund for the taxable year 1944 and complained specifically of the action of the Commissioner of Internal Revenue referred to in the preceding paragraph.
On October 13, 1954, within two years of the commencement of this action, the Commissioner of Internal Revenue notified plaintiff by registered mail of the disallowance in full of said amended and supplemental claim for refund.
Plaintiff timely paid substantial excess profits tax for the year 1944. In the taxable year of 1946 it sustained a net operating loss. Under the provisions of Sections §§ 23(s) and 122 of the Internal Revenue Code of 1939, 26 U.S.C.A. 23(s), 122, plaintiff was entitled to deduct said loss from its gross income for the taxable year 1944 in computing its corporation income and excess profits tax liability for the taxable year 1944. Plaintiff in due course filed claim for refund which was eventually disallowed in full by the Commissioner of Internal Revenue because the Commissioner had in due course determined that the Metropolitan refund was properly chargeable as 1946 rather than 1947 income.
As above stated, the sole controverted factor in the case is whether certain income, to wit., a rebate or dividend on the insurance policy in question accrued to plaintiff during the taxable year 1946, as the Government asserts, or in the taxable year 1947, the year in which plaintiff ...