Commissioner v. Western Union Life Ins.

Respondent is a life insurance company organized under the laws of the state of Washington. One form of policy written by respondent contains provisions whereby additional benefits are given by means of several interest bearing coupons attached to and made a part of the policy. The first coupon matures at the end of the first year after the policy is written, the second coupon at the end of the second year, and so on; the amounts increasing annually. These coupons are absolute undertakings to pay stated sums on or after certain dates, provided all premiums due are paid. The coupons may be used for different purposes, namely, cashed, used in the reduction of the annual premium, used for the purchase of additional insurance, left to accumulate with the company at' interest compounded annually, or used to acquire an annuity.

In its tax returns for the years 1924, 1925, and 1926, the taxpayer deducted from its gross income 4 per cent, of the mean of the reserve fund it was required by law to maintain to meet mortality obligations, claiming that it was entitled, under the provisions of - section 245 (a) (2) of the- Revenue Acts of 1924 and 1926, 26 USCA § 1004 (a) (2), to make such…