Leslie Salt Co. v. United States

26 U.S.C. § 1801 1 imposes a tax of 11 cents on each $100 of face value, inter alia, upon all “debentures” issued by any corporation.

Plaintiff corporation owed large sums of money to -certain banks. In order to fund these loans and to obtain needed working -capital, it borrowed $1,000,000 from Pacific Mutual Life Insurance Company and $3,000,000 from Mutual Life Insurance Company of New York. It executed promissory notes for $1,000,000 and $3,000,000 respectively to the two insurance companies. Simultaneously it executed agreements with the insurance -companies, by which its business activities and the handling of its funds were circumscribed to protect the insurance companies and safeguard payment of the notes as therein provided. 2

The Collector of Internal Revenue assessed and collected from plaintiff a tax of $4,400 upon the two notes, upon the -ground that the notes were “debentures,” as provided in 26 U.S.C. § 1801 . Plaintiff duly -filed a claim for refund, alleging that the promissory notes were “promissory notes” and not debentures. This suit' followed upon denial of the claim for refund.

There was a time when promissory notes issued in commercial transactions were…