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21 F.(2d) 85

the aggregate total of capital, surplus, and undivided profits of national banks in Multnomah county is approximately $12,000,000, and in the state $23,000,000, avers that in compliance with the laws of Oregon each complainant furnished the county assessor a verified statement showing the amount and number of shares of its capital stock, the amount of its surplus and undivided profits, and based thereon there was assessed and levied against the shareholders of each of plaintiffs, to be paid by the bank in a lump sum, certain taxes, and that a warrant for the collection thereof has been issued and placed in the hands of defendant; that at the time the assessments in question were made there was in the hands of and owned by individual citizens residing in Multnomah county moneyed capital amounting in the aggregate to $50,000,000, and in the state to at least $75,000,000 (exclusive of notes secured by recorded real estate mortgages and taxexempt bonds), "all of which money and capital came into substantial competition with complainants and other national banks in the conduct of their business"; that the total amount of money, notes, and accounts in the hands of individual citizens assessed for taxation in the county of Multnomah was $14,501,630, and in the state $17,109,812; that mortgage loan companies, finance corporations, investment bankers, and like corporations, "with a substantial capital directly competing with plaintiffs' business, paid no taxes at all, or a tax on the basis of approximately 1 per cent. of the tax that would have been paid if they had been assessed and taxed upon the same basis as the shareholders of plaintiffs had been assessed and taxed"; that at the time the assessment was made the aggregate total of competing capital in the hands of individual citizens of Multnomah county and elsewhere, invested in notes secured by recorded mortgages on real estate in the county, approximated the sum of $100,000,000, and in the state not less than $200,000,000, all of which is exempt from taxation; that competing capital to the extent of approximately $20,000,000 was invested in bonds of the state, which are by law exempt from taxation; that complainants, as part of their business, make real estate money loans to a very limited amount, and frequently accept such loans as collateral security.

[3,4] These allegations are, in my judgment, sufficient, if true, to show a violation of the federal statute authorizing the taxation of national bank shares within the doctrine of First Nat. Bank v. Anderson, 269

U. S. 341, 46 S. Ct. 135, 70 L. Ed. 295. Indeed, they are more definite and certain than the allegations of the complaint in the case referred to. They sufficiently apprise the defendant of the case he is required to meet. It may be suggested that, because the laws of the state on their face require all property (except such as is exempt from taxation), real and personal, including bank shares, to be assessed (Or. L. § 4232) at its true cash value and taxed at the same rate (section 4268, as amended Laws 1925, p. 167, and section 4269), the mere failure or neglect of the tax officials to assess all moneyed capital subject to taxation coming in competition with the business of national banks will not invalidate the tax on bank shares, unless the omission was intentional and systematic. Southern R. Co. v. Watts, 260 U. S. 519, 43 S. Ct. 192, 67 L. Ed. 375.

This question, however, if important, may be reserved for further consideration. The state law expressly exempts from taxation notes secured by recorded mortgages on real estate and bonds issued for highway purposes. Section 4235 (as amended by Laws 1925, p. 485); Laws of 1921, p. 688. And if, as alleged, the large amount of moneyed capital thus invested is invested substantially as the loan or investment feature of banking, the exemption of such property from taxation is a discrimination against the assessment of bank shares, and prohibited by the statutes. Georgetown National Bank v. McFarland et al., 47 S. Ct. 467, 71 L. Ed. 779 (March 21, 1927); First National Bank of Hartford v. City of Hartford, 47 S. Ct. 462, 71 L. Ed. 767 (March 21, 1927); Minnesota v. First National Bank of St. Paul, 47 S. Ct. 468, 71 L. Ed. 774 (March 21, 1927). It is true the Supreme Court held in Adams v. Nashville, 95 U. S. 19, 24 L. Ed. 369, and in Hepburn v. School Directors, 23 Wall. (90 U. S.) 480, 23 L. Ed. 112, that the exemption by a state from taxation of bonds and mortgages did not necessarily invalidate the taxation on national bank shares. But these decisions were made at a time when national banks were prohibited from making loans on real estate, and that prohibition has been partially withdrawn and the field opened to such banks by Act Dec. 23, 1913, c. 6, § 24 (38 Stat. 273) and Act Sept. 7, 1916, c. 461 (39 Stat. 754) being 12 USCA § 371. First Nat. Bank v. Anderson, supra; First Nat. Bank v. Hartford, 47 S. Ct. 462, 71 L. Ed. 767, March 21, 1927. In any event such decisions are not authority for the broad principle that national bank shares may be subject to local taxation where a

very material part relatively of competing moneyed capital in the hands of individual citizens within the same jurisdiction is exempt from such taxation, Boyer v. Boyer, 113 U. S. 689, 5 S. Ct. 706, 28 L. Ed. 1089. [5] 2. The county or state authorities have no power to grant plaintiffs the relief prayed for. They are not complaining because their shares have been overvalued, or that competing moneyed capital has been undervalued, as compared with the valuation of bank shares, but that competing moneyed capital is not assessed at all, or, if assessed, at a much lower rate than that imposed upon shares of national banks. The assessing officers, of course, have no authority to assess

for taxation notes and bonds which are by law exempt, and to require plaintiffs to appear before the assessing board to have other competing moneyed capital assessed, would be, as said by the Chief Justice in Sioux City Bridge Co. v. Dakota County, 260 U. S. 446, 43 S. Ct. 190, 67 L. Ed. 340, 28 A. L. R. 979, "to deny the injured taxpayer any remedy at all because it is utterly impossible for him by any judicial proceeding to secure an increase in the assessment of the great mass of under-assessed property in the taxing district."

[6] 3. It is, of course, a well-established rule that, before a taxpayer can seek the aid of a court to be relieved from an excessive taxation, he should do justice by paying so much of the tax as can plainly be seen he ought to pay. German National Bank v. Kimball, 103 U. S. 732, 26 L. Ed. 469; Northern P. R. Co. v. Clark, 153 U. S. 252, 14 S. Ct. 809, 38 L. Ed. 706. But the claim here is that the entire tax is void, because in violation of the law of Congress sanctioning

the assessment of bank shares. In such a case a tender is not necessary as a condition to relief. First Nat. Bank of Covington v. City of Covington (C. C.) 103 F. 523; Norwood v. Baker, 172 U. S. 269, 19 S. Ct. 187, 43 L. Ed. 443; Fargo v. Hart, 193 U. S. 490, 24 S. Ct. 498, 48 L. Ed. 761.

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ary, it must be regarded as assets to which trustee in bankruptcy is entitled.

2. Bankruptcy 143(12)-That right to mature surrender value of insurance policy is personal to insured does not prevent its passing to trustee in bankruptcy (Bankruptcy Act, § 70a, cl. 3 [11 USCA § 110]).

That right to mature claim for surrender value of life insurance policy is personal to insured does not prevent cash value from passing to trustee in bankruptcy as an asset, in view of Bankruptcy Act, § 70a, cl. 3 (11 USCA § 110).

3. Bankruptcy 143 (12) -Policy reserving right to change beneficiary, and providing for cash surrender value, passed as asset to trustee in bankruptcy of insured (St. Wis. 1925, §§ 272.18, 246.09; Bankruptcy Act, §§ 6a, 70a [11 USCA §§ 24, 110]).

Life insurance policy held by bankrupt, in which wife was named as beneficiary, having provision that insured could change beneficiary, and providing for cash surrender value, was not exempt, under St. Wis. 1925, §§ 272.18, 246.09, and passed to trustee as an asset, under Bankruptcy Act, §§ 6a, 70a (11 USCA §§ 24,

110).

4. Bankruptcy 143(12)-Insurance policy, having cash surrender value payable to both insured and beneficiary, did not pass to trustee in bankruptcy of insured (Bankruptcy Act, § 70a [11 USCA § 110]).

Life insurance policy held by bankrupt, in which his wife was named as beneficiary, in which no right to change beneficiary was reserved, and having no provision for cash surrender value, but which had cash surrender value payable only upon surrender by both insured and beneficiary, to both and not to either one alone, did not pass to trustee in bankruptcy as an asset, under Bankruptcy Act, § 70a (11 USCA § 110).

In Bankruptcy. In the matter of Alexander Grant, bankrupt. On review of an order of Charles A. Wilson, referee. Affirmed in part, and in part reversed.

F. A. Eckman, of Superior, Wis., for bankrupt. G. H. Winsor, of Superior, Wis., for trustee.

LUSE, District Judge. Of a number of insurance policies held by the bankrupt, in which his wife was named as beneficiary, the referee in the order above mentioned held that a policy in the Prudential Insurance Company, dated November 6, 1913, for $2,000, is not exempt, and passed to the trustee as an asset, and held likewise with reference to a policy in the New York Life Insurance Company for $977. With respect to the other policies the referee held that they did not constitute an asset in the hands of the trustee. The bankrupt seeks review with respect to the order so far as it affects the Prudential and New York Life policies.

21 F.(2d) 88

Section 6 of the Bankruptcy Act (11 USCA § 24) provides as follows:

"a. This act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the state laws in force at the time of the filing of the petition in the state wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition."

Section 70a of the Bankruptcy Act (11 USCA § 110), so far as material, reads as follows:

..

"The trustee of the estate of a bankrupt, upon his appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except insofar as it is to property which is exempt, to all (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person, (5) property which

prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him. When any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay, or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee

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fit; and every such policy, when expressed to be for the benefit of or assigned or made payable to any married woman or any such trustee, shall be the sole and separate property of such married woman and shall inure to her separate use and benefit and that of her children, and in case of her surviving the period or term of such policy the amount of the insurance shall be payable to her or her trustee for her own use and benefit, free from the control, disposition or claims of her husband and of the person effecting or assigning such insurance and from the claims of their respective representatives and creditors." [1] In view of Cohen v. Samuels, 245 U. S. 50, 38 S. Ct. 36, 62 L. Ed. 143, and Cohn v. Malone, 248 U. S. 450, 39 S. Ct. 141, 63 L. Ed. 352, together with Frederick v. Fidelity Insurance Co., 256 U. S. 395, 41 S. Ct. 503, 65 L. Ed. 1009, the question is settled that where a policy of life insurance has a surrender value, payable in terms to the bankrupt, or if not in terms payable to him, but which could be made so payable at the bankrupt's will by a simple declaration changing the beneficiary, it "must be regarded as assets to which the trustee in bankruptcy was entitled." In so far as the policies in question conform to this condition, they must be regarded as assets which would pass to the trustee under the provisions of section 70 above quoted, unless such policies are exempt, as provided in section 70a and section 6 of that act.

Whether the policies are exempt depends upon their provisions and whether they come within the terms of the Wisconsin Statutes above quoted. There has been considerable uncertainty with reference to the intent of the law in Wisconsin since the passage of the statutes under consideration, and until the decisions in Hilliard v. Life Ins. Co., 137 Wis. 208, 117 N. W. 999, supplemented by Nat. Life Ins. Co. v. Brautigam, 163 Wis. 270, 154 N. W. 839, 157 N. W. 782, and Christman v. Christman, 163 Wis. 433, 157 N. W. 1099. In the Hilliard Case it was determined that it was competent for the insured and insurer to incorporate in a life insurance policy payable to his wife a provision that the policy might be surrendered by the insured, and in the event of such surrender the beneficiary should have no claim whatever upon the company. It was held that this phrase took the policy outside of the provisions of what is now section 246.09 of the Wisconsin Statutes, and in the Brautigam Case, after first holding the contrary, on rehearing the Wisconsin court held that it was competent for the insured and insurer to incorporate in a life insurance policy payable to the wife of the insured that the latter reserve the right to change the beneficiary, and that such a provision is valid, and under such a provision the husband might change the beneficiary, though it be his wife, without her consent.

In the Christman Case it was held that this power to change the beneficiary must be exercised according to the provisions of the policy, and not otherwise, and that it could not be done by will. In this case this power or privilege of changing the beneficiary is spoken of as "a power reserved." And in the Hilliard Case it was said: "It must follow, as we view the matter, that under the terms of the policy the right to mature a claim for a surrender value is personal to respondent."

[2] The fact that this privilege or power is deemed personal to the insured is stressed somewhat by counsel for the bankrupt as bearing upon his claim that the right does not pass to the trustee. But this is not thought sound, in view of the provisions of subdivision 3 of section 70a of the Bankruptcy Law.

Assuming, but not deciding, that the exemption, not in favor of the bankrupt, but in favor of his wife, is covered by the phrase "except in so far as it is to property which is exempt," appearing in section 70a, it is clear under the Wisconsin decisions above referred to that provisions in the policy providing for the surrender and payment of the surrender value to the insured, and also those reserving to the insured the right to change the beneficiary without the latter's consent, are valid provisions, and where they appear in the policy take the policy out of the provisions of section 246.09 of the Wisconsin Statutes, at least prior to its maturity.

Bankrupt relies largely upon Holden v. Stratton, 198 U. S. 202, 25 S. Ct. 656, 49 L. Ed. 1018, and Allen v. Central Wis. Trust Co., 143 Wis. 381, 127 N. W. 1003, 139 Am. St. Rep. 1107. However, the Holden Case is not applicable, in view of the provision of the Washington law "that the proceeds or avails of all life insurance shall be exempt from all liability for any debt." That provision exempted to the bankrupt the surrender value of life insurance policies, and came clearly within the terms of section 6 of the Bankruptcy Act, as well as the exception as to exempt property found in section 70a. Al

len v. Central Wis. Trust Co. was decided by the Wisconsin Supreme Court before that court finally arrived at its conclusion, expressed in the Brautigam Case, that the right to change the beneficiary could validly be reserved, and was also determined without the aid of the later decisions in the United States Supreme Court hereinbefore alluded to.

In the policy in suit, issued by the Prudential Insurance Company, it is provided: "The insured may, at any time when this policy is in force, by written notice to the company at its home office, change the beneficiary or beneficiaries under this policy, such change to take effect only upon endorsement of the same on the policy by the company, whereupon all rights of the former beneficiary or beneficiaries shall cease."

[3] The policy also contains a provision for cash surrender value, and it appears therein that it had such a value, if the surrender were effected on or before August 6, 1926, of $481, less an indebtedness of $133.41. It is entirely clear, then, that so far as this policy is concerned the insured had the right to change the beneficiary without her consent, thus terminating all her rights under the policy, and to surrender the policy and receive its cash surrender value. This being so, the order of the referee was clearly right with respect to this policy.

[4] With respect to the policy in the New York Life Insurance Company, however, no right to change the beneficiary was reserved, nor, for that matter, was any provision for a cash surrender value contained in the policy. However, it appears in evidence that the same has a cash surrender value, but payable only upon surrender by both the insured and the beneficiary, and such value payable to both, and not to either one alone. As to this latter policy, therefore, it does not come within the provisions of section 70a, and the order of the referee was erroneous in that regard.

It is therefore ordered and adjudged that the order of the referee, filed June 30, 1927, be and the same is hereby affirmed in so far as it relates to the policy of the Prudential Insurance Company of America, dated November 6, 1913, and said order is hereby reversed so far as it relates to the policy issued by the New York Life Insurance Company, No. 684610, for $977.

21 F.(2d) 91 CONHAIM HOLDING CO. v. WILLCUTS,

Collector of Internal Revenue.

District Court, D. Minnesota, Third Division.
August 10, 1927.

No. 1551.

Internal revenue 9 (26)-Holding company, handling assets of estate for profit of heirs, held corporation "doing business," and subject to capital stock tax (Revenue Act 1924, $700a [1], being 26 USCA § 223 [1]).

A holding corporation, organized for the purpose of holding the assets of a decedent until they could be disposed of advantageously, and then to distribute the proceeds among the heirs, and in the meantime to handle the stocks, leaseholds, lands, and other assets in such way as would be to the best advantage to the corporation and those interested in it, which it did, held "doing business," within Revenue Act 1924, $700a (1), being 26 USCA § 223 (1), Comp. St. § 5980n, and subject to capital stock tax thereunder.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Doing Business.]

At Law. Action by the Conhaim Holding Company against Levi M. Willcuts, Collector of Internal Revenue. Judgment for defendant.

Benjamin H. Flesher, of Minneapolis, Minn., for plaintiff.

Leland W. Scott, Asst. U. S. Atty., and Ralph S. Scott, Sp. Asst. U. S. Atty., both of Washington, D. C., for defendant.

JOHN B. SANBORN, District Judge. In December, 1920, the plaintiff, Conhaim Holding Company, was incorporated under the laws of Minnesota. Its main object was to hold and conserve the assets belonging to the estate of Louis Conhaim, deceased, to liquidate them when that could be done advantageously, and to distribute their avails among the stockholders of the corporation. The estate consisted of stocks, leaseholds, timber land, and life insurance renewal commissions. The corporation has maintained an office, but has no employees. It has never dealt in securities. It has never sold the timber land, because no opportunity has arisen to sell it. No income is received from it. The secretary of the corporation receives a salary of $100 a year for his services and is an auditor and accountant. The income of the corporation consists of dividends upon the stocks, renewal commissions upon life insurance written by Louis Conhaim in his lifetime, and rentals from the leaseholds. Numerous loans have been made by the corporation to its stockholders, who-with the exception of a son-in-law and the secretary, who

hold qualifying shares are the heirs of Louis Conhaim. One loan was made to the American Security Company at the request of the son-in-law. The loans were apparently made for the accommodation and benefit of the stockholders, but interest was paid and collected. In some cases, the company has loaned its credit to the stockholders, and in other cases, when in funds, has permitted them to have the use of funds, paying the current rate of interest therefor. No distribution of assets or income has been made, and the carrying charges of the property require most of the income.

Revenue Act 1924, § 700 (a) (1), being 26 USCA § 223 (1), Comp. St. § 5980n, provides that "every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000." The plaintiff paid this excise tax for 1921, 1922, and 1923, amounting in all to $156, and then decided that it was not doing business within the meaning of the Revenue Act, and has brought this suit to recover what it has paid to the government.

The question is whether the corporation was required to pay the tax. The powers of the corporation, as enumerated in its articles, are as follows:

"To hold, own, acquire, use, manage, develop, improve, lease, buy, sell, transfer, convey, deal in, encumber, pledge, mortgage, assign, exchange and otherwise dispose of any and all kinds of property, real, personal and mixed, and wheresoever situated, including lands, and any interest therein, chattels, bonds, stocks and other securities and evidences of indebtedness, whether corporate or not; to loan and borrow money, either with or without security, but not to engage in a banking business; to purchase or otherwise acquire, hold and reissue, subject to the provisions of law, the shares of its own capital stock; to acquire, undertake, carry on and dispose of all or any part of the business, assets, liabilities and securities of any person, partnership, association or corporation, and to become surety or guarantor for the debts and obligations of the same, and to do any and all things essential, necessary or convenient or advisable in the conduct of such business."

It has been held that, in determining whether a corporation is obliged to pay the tax, the question is what the corporation is doing, and not what it could do. United States

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