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HANDELMAN v. UNITED STATES

June 28, 1956

Anna K. HANDELMAN, Plaintiff,
v.
UNITED STATES of America, Defendant



The opinion of the court was delivered by: NOONAN

The defendant herein, sued by the plaintiff to recover a refund of income tax paid by her, has moved this court, pursuant to Rule 56(b) of the Federal Rules of Civil Procedure, Title 28 U.S.C., for an order granting it summary judgment. The plaintiff herein has cross moved, pursuant to Rule 56(a), for an order granting her summary judgment.

The issue involved is one of law alone since all of the pertinent facts have been agreed upon and stipulated by the parties. *fn1"

 The Equitable Life Assurance Society of the United States, on May 4, 1928, issued its policy No. 4,747,743 insuring the life of the plaintiff's husband. Thereafter, the policy matured by reason of the death of the insured, and Equitable began paying to the plaintiff, in instalments, the proceeds of the insurance in accordance with the terms of the policy (which named her 'primary beneficiary').

 For the years in issue herein, 1942 through 1945, the plaintiff included as income in her Federal Income Tax returns portions of such insurance proceeds for the respective years in which she received them. Plaintiff thereafter filed claims for refunds of the paid income taxes arising out of the inclusion of the portions of the insurance instalments as income in her tax returns. Such claims were rejected by the Treasury Department, whereupon plaintiff instituted this action to recover the refunds.

 The issue herein is:

 Was plaintiff obligated under Sec. 22(b)(1) of the Internal revenue Code or Section 29.22(b)(1)-1 of Regulation 111 of the Bureau of Internal Revenue, United States Treasury Department, relating to income tax under the Internal Revenue Code, to include as income in her tax returns any portion of the instalments paid to her under the policy herein?

 The pertinent portions of Sec. 22(b)(1) of the Internal Revenue Code of 1939 and of the implementing section 29.22(b)(1) of the Regulations read as follows:

 26 U.S.C. § 22(b):

 'Exclusions from Gross Income. -- The following items shall not be included in gross income and shall be exempt from taxation under this chapter:

 '(1) Life insurance. -- Amounts received under a life insurance contract paid by reason of the death of the insured, whether in a single sum or otherwise (but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income)'. (Act of May 28, 1938, C. 289, Sec. 22(b), 52 Stat. 458).

 26 C.F.R. Sec. 29.22(b)(1)-1:

 'The proceeds of life insurance policies, paid by reason of the death of an insured * * * are excluded from the gross income of the beneficiary * * * It is immaterial whether the proceeds are received in a single sum or otherwise. If, however, such proceeds are held by the insurer under an agreement to pay interest thereon, the interest payments must be included in gross income.' (T.D. 5515, 11 F.R. 5474).

 The terms of the policy provided that, upon the death of the primary beneficiary, the insurance company (which was to retain the proceeds during the life of the primary beneficiary but was to pay her an annuity of 5% of the $ 35,000 face amount of the policy) was to pay the retained proceeds (the face amount of the policy) to a secondary beneficiary.

 It is immediately apparent that plaintiff's instalment payments meet the primary provisions of both the Code and the Regulations since the amounts are received under a life insurance contract or policy ...


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