Opinion
No. 3182.
March 2, 1925.
In Error to the District Court of the United States for the District of New Jersey; John Rellstab, Judge.
Newton K. Fox, of Washington, D.C., for plaintiff in error.
John O.H. Pitney, John R. Hardin, David Kay, Jr., and Jay Ten Eyck, all of Newark, N.J., for defendant in error.
Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.
The collector of internal revenue for the Fifth district of New Jersey assessed upon the plaintiff a war excess profits tax of $83,779.70. This tax resulted from the government's theory that the plaintiff's legal reserve fund of $186,258,796 was not "invested capital," within the meaning of section 207 of the Income Tax Act of October 3, 1917 (Comp. St. 1918, § 6336 3/8h). In its return for the year 1917, the insurance company declared its invested capital to be $202,685,846.45, which included its legal reserve fund. In amending the return, the collector excluded this fund, and allowed only $14,719,043.76 as "invested capital." This made the plaintiff's per centum of income very high. It brought this suit to recover the excess profits tax, on the ground that its reserve fund was a part of its "invested capital." If this position is sound, it would greatly decrease the rate of income. The defendant moved to strike out the complaint. In disposing of this motion, Judge Rellstab held that the legal reserve fund was "invested capital," within the meaning of the act, and that the tax was assessed on the wrong basis. We are in accord with his conclusions, and affirm the judgment (295 F. 881) on his able opinion as expressing our views.