Louis Brandeis

“ Mutual fire, mutual marine, and mutual life insurance companies are analogous in that each performs the service called insuring wholly for the benefit of their policy holders, and not like stock insurance companies in part for the benefit of persons who as stockholders have provided working capital on which they expect to receive dividends representing profits from their investment. ”

“ But the company, ignoring the differences in the provisions concerning fire and marine companies respectively, insists that mutual life insurance rests upon the same principles as mutual fire and marine, and that as the clauses concerning fire and marine companies provide specifically for noninclusion in or deduction from gross income of all portions of premiums returned, Congress must have intended to apply the same rule to all. Neither premise nor conclusion is sound. ”

“ The dividend of a life insurance company may be regarded as paying back part of these deposits called premiums. The dividend is made possible because the amounts paid in as premium have earned more than it was assumed they would when the policy contract was made, or because the expense of conducting the business was less than it was then assumed it would be or because the mortality-that is, the deaths-in the class to which the policy holder belongs proved to be less than had then been assumed in fixing the premium rate. ”

“ The real difference between the two classes of life companies as now conducted lies in the legal right of electing directors and officers. In the stock company stockholders have that right; in the mutual companies the policy holders who are the members of the corporation. ”

“ It is argued that the nature of life insurance dividends is the same, whatever the disposition made of them, and that Congress could not have intended to relieve the companies from taxation to the extent that dividends are applied in payment of premiums and to tax them to the extent that dividends are not so applied. ”

“ The government contends, in substance, for the rule that in figuring the gross income of life insurance companies, there shall be taken the aggregate of the year's net premium receipts made up separately for each policy holder. ”

“ The fact that the investment resulting in accumulation or dividend is made by a cooperative as distinguished from a capitalistic concern does not prevent the amount thereof being properly deemed a profit on the investment. Nor does the fact that the profit was earned by a co-operative concern afford basis for the argument that Congress did not intend to tax the profit. Congress exempted certain co-operative enterprises from all income taxation, among others, mutual savings banks ”

“ Premiums paid-not in the tax year, but perhaps a generation earlier-have earned so much for the cooperators that the company is able to pay to each not only the agreed amount, but also additional sums called dividends, and have earned these additional sums, in part at least, by transactions, not among the members, but with others, as by lending the money of the co-operators to third persons who pay a larger rate of interest than it was assumed would be received on investments. ”

“ The amount equal to the aggregate of certain dividends is excluded, although they are dividends because by reason of their application the net premium receipts of the tax year are to that extent less. ”

“ In other words, these mutual companies are alike in that they are co-operative enterprises. But in respect to the service performed fire and marine companies differ fundamentally, as above pointed out, from legal reserve life companies. ”