George Sutherland

“ The contention of the collector is that under subdivisions (1) and (2) , section 207 (a) , invested capital must be either cash or tangible property paid in for stock or shares of the corporation, and inasmuch as the company has no capital represented by stock or shares, its legal reserve is not invested capital within the meaning of those subdivisions; that the legal reserve is not surplus or undivided profits within the meaning of subdivision (3) , because it is no more than the equivalent of the obligations of the company at the time under its policies of insurance. ”

“ These assets, thus constituted, have never represented indebtedness any more than the capital of a stock corporation subscribed by its stockholders represents indebtedness. Until the maturity of a policy, the policyholder is simply a member of the corporation, with no present enforceable right against the assets. ”

“ Such an interpretation does no violence to the ordinary meaning of the word, for while it is entirely proper to speak of 'stock' as 'shares' it is equally proper to designate the several interests in a common fund as 'shares.' To the extent of $70,000,000 the legal reserve consisted of 'actual cash paid in' by the members. These payments were intended for investment, and were invested, to increase the resources of the company and thereby reduce the cost of the insurance ”