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Morse v. Commissioner of Internal Revenue.

UNITED STATES COURT OF APPEALS SECOND CIRCUIT.


decided: February 5, 1953.

MORSE
v.
COMMISSIONER OF INTERNAL REVENUE.

Author: Frank

Before AUGUSTUS N. HAND, CHASE and FRANK, Circuit Judges.

FRANK, Circuit Judge.

The findings and decision of the Tax Court, reported in 17 T.C. 1244, state the facts. The taxpayer does not dispute the findings. We agree with its decision and the reasons it gives to justify the decision. The taxpayer concedes that the first sentence of § 22(b) (2) (B) does not apply.*fn1 He insists that the second sentence does.

1. We think not. We think it relates exclusively to a situation in which the employee obtains enforceable rights in the annuity at the time when the employer procures the annuity; in such a situation, if the annuity was originally forfeitable, the employee must include in his gross taxable income no more than the amount contributed by his employer after it became nonforfeitable, i. e., he need not include anything thus contributed while his rights were still forfeitable. But here taxpayer did not have forfeitable rights in 1941 which became nonforfeitable in 1943; instead, he first obtained any rights in 1943, and at that time they were nonforfeitable. Accordingly, § 22(a) applies.

2. But let us assume that the second sentence of § 22(b) (2) (B) governs. Even so, we think the decision correct. For the employer cannot be said to have "contributed" anything beneficial to the employee in 1941, since then he had not the tiniest vestige of a legal interest in the annuity. Only in 1943 did the employer "contribute"; and what it "contributed" was the value of the annuity minus the amount it had theretofore been paid thereunder. Had the taxpayer been given the same nonforfeitable rights in 1941 as he received in 1943, then, under § 22(b) (2) (B), his gross income would have included a contribution of $37,645.25.The fact that he received the rights for the first time in 1943 can but serve to reduce the includible sum by the $3,750 paid to the employer by the insurance company in the intervening period.

Affirmed.


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