Berizzi Bros. Co. v. Commissioner , 16 B.T.A. 1307 ( 1929 )

BERIZZI BROTHERS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Berizzi Bros. Co. v. Commissioner

Docket No. 22388.

United States Board of Tax Appeals

16 B.T.A. 1307; 1929 BTA LEXIS 2411;

July 5, 1929, Promulgated

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Premiums paid by petitioner covering insurance policies on lives of its officers, under which petitioner was neither directly nor indirectly a beneficiary held to be deductible as ordinary and necessary expenses.

Arthur Rothstein, Esq., for the petitioner.

Byron M. Coon, Esq., for the respondent.

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MORRIS

This proceeding is for the redetermination of deficiencies of $311.57 and $434.61, income taxes asserted by respondent for the calendar years 1922 and 1923, respectively. One issue is presented for determination, viz., whether respondent erred in disallowing as a deduction from income, life insurance premiums of $2,571.95 for 1922 and $2,571.95 for 1923.

FINDINGS OF FACT.

The petitioner is a New York corporation engaged in importing raw silk from Italy, China, and Japan. It was organized in 1904 or 1905 with a capital stock of $30,000, par value $100 per share. The capital stock was increased from time to time, so that during the taxable years in question the outstanding capital stock of the petitioner was 5,000 shares, 4,000 shares being held by Louis Berizzi, and 1,000 shares by Emilio Berizzi, the father of Louis.

The officers of the petitioner during 1922 and 1923 were Louis Berizzi, president, Stefano Berizzi, brother of Louis, treasurer, and Herman Goldman, secretary. The Berizzi brothers devoted all of their time and attention to the petitioner's business and operated it just as if it were their personal business. The petitioner paid salaries of $12,000 per year to each of the Berizzi brothers. Stefano had been a stockholder of the petitioner, but had disposed of his stock and gone out of the business prior to January 1, 1922. However, he was employed by the petitioner during 1922 and 1923, although he held no stock in the company.

On May 18, 1922, three insurance policies were taken out on the lives of Louis and Stefano Berizzi. The policies were of the type known as 20-payment life, and gave the policyholder the right to change the beneficiary. One policy insured Louis Berizzi for $25,000, another insured Stefano for $20,000, and the third insured Stefano for $5,000. The policy of Louis was payable at his death to his executors, administrators, or assigns, but subsequently, and on January 21, 1927, Louis changed the beneficiary, making the policy payable to his daughter, Lucia M. Berizzi. The two policies issued on the life of Stefano Berizzi name his wife, Paola, as beneficiary. Stefano's policies bear no change of beneficiary. Neither Lucia M. Berizzi nor Paola Berizzi held stock in the petitioner at any time.

The initial premiums on the three policies were paid by check of the petitioner, dated June 23, 1922, in the amount of $2,571.95. The premiums for 1923 were paid by petitioner by two checks, dated April 17, 1923, one check being drawn for $1,434.70, and the other for $1,137.25. The petitioner was neither directly nor indirectly a beneficiary under any of the three policies. No one of the policies was ever used to secure a loan.

The decision to take out insurance policies on the lives of its principal officers was reached by Louis and Stefano Berizzi through informal discussions, and no corporate authorization was secured by them prior to the payment of the first premiums on the three policies. They felt that the salaries were comparatively small in proportion to the services and volume of business the company was doing, but thought it was better not to overcharge the expenses of the company for any additional salaries. They decided to let the company take out the policies, so that their families would have some protection if anything happened to them.

At the annual meeting of the stockholders on January 15, 1923, the following resolution was adopted:

RESOLVED that every act or acts, thing or things done or performed, expenses or liability incurred, and every document and paper signed, executed and delivered or filed by the Directors of the company or by the officers of the company under their direction during the past year, be and the same hereby are in all respects approved, ratified, confirmed and adopted by the stockholders as their acts, expenses, liabilities and deeds.

In making their personal returns for 1922 and 1923, neither Louis Berizzi nor Stefano Berizzi reported the premiums paid on their respective policies as income.

Petitioner reported net income for 1922 in the amount of $35,912.10, and net income for 1923 as $29,038.20. For each year it deducted from gross income the $2,571.95 which it had paid as premiums on the insurance policies covering the lives of its president and treasurer. Respondent disallowed the deduction for each of the taxable years and determined the deficiencies hereinabove set forth.

OPINION.

MORRIS: The petitioner herein claims as ordinary and necessary business expenses certain premiums paid on life insurance policies covering the lives of its president and treasurer. The deduction is claimed under section 234(a)(1) of the Revenue Act of 1921, but in determining the issue, recourse must be had to the inhibition contained in section 215(a)(4) of the same Act. This latter section provides that "no deduction shall be allowed in respect of * * * premiums on any life insurance policy covering the life of any officer or employee, * * *, when the taxpayer is directly or indirectly a beneficiary under such policy."

The evidence in this proceeding has been primarily adduced to prove that petitioner was neither directly nor indirectly a beneficiary under any one of the three policies, and we have found this to be a fact, which removes the petitioner from the restrictions of section 215(a)(4). The record shows that the two officers whose lives were insured devoted all their time to the petitioner's business, that one of the officers was not a stockholder during the taxable years and that the stockholders ratified the officers' action in paying the premiums in question. We are therefore of the opinion that the petitioner is entitled under section 234(a)(1) of the Revenue Act of 1921 to the deduction claimed, as additional compensation.

Judgment will be entered under Rule 50.