William O. Douglas

“ The Government readily admits that the present level of § 404 (b) premiums is not needed to cover current foreseeable losses. Indeed, losses have never exceeded investment income. The high premium rate is for the purpose of establishing a Primary Reserve, to cover conceivably serious losses in the future. When the Primary Reserve reaches a level deemed sufficient, no premium payments will be required at all. ”

“ From this he argues that the determination of whether respondent's § 404 (d) premiums are capital expenditures or deductible business expenses depends on whether the payments will provide a benefit in future years.
Because the respondent will obtain a benefit in the future from these premiums, in the form of lower § 404 (b) premiums of by a full refund of its pro rata share on termination or liquidation, he argues, the Secondary Reserve is a capital asset. It is not used for losses, and will never be used except in the event of a national catastrophe. ”

“ Respondent has not established an asset for future benefit. It has merely paid the premiums necessary to obtain insurance. It is true that premiums paid in 1963 may result in a reduction in premiums in later years. ”