Hastings, Senior Circuit Judge, and Kiley and Kerner, Circuit Judges.
HASTINGS, Senior Circuit Judge.
Plaintiff-taxpayer Landfield Finance Company brought this action in the district court seeking an income tax refund in the amount of $6,626.48 which it alleges was illegally and erroneously assessed and collected. The district court entered judgment adverse to taxpayer and this appeal followed. We affirm.
The sole issue on appeal is whether the proceeds of a life insurance policy were "received [by plaintiff-taxpayer-creditor] * * * under a life insurance contract * * * by reason of the death of the insured [debtor]" within the meaning of Section 101(a) (1) of the Internal Revenue Code of 1954,*fn1 under the facts of this case.
The trial court accepted a written stipulation of all relevant facts entered into by the parties.
Taxpayer is in the business of making loans. On September 15, 1958, it made a loan to the Matson Music and Printing Company, Inc. in the total amount of $44,167.37. From this principal sum, taxpayer immediately deducted and received an interest charge of $16,710.00. Carl Matson was the sole stockholder of Matson Music and gave his personal guarantee as part of the security for the loan to Matson Music. In addition, he was required to insure his own life and to pay the policy premiums as a condition of securing the loan from the taxpayer. The face amount of the policy was $21,800.
The creditor was designated as an irrevocable beneficiary in and co-owner of the policy. It was entitled to receive payment of the proceeds of the policy from the insurance carrier upon proof of the debtor's death. However, the creditor was obligated to pay any amount in excess of the unsatisfied indebtedness to secondary beneficiaries designated in the policy by the insured. The relevant sections of the policy are set out in the margin.*fn2
After the loan was made and the insurance policy issued, there was a default in the loan payments followed by a foreclosure and sale of certain tangible security; an unsatisfied loan balance remained.
Carl Matson died April 11, 1960, and the total proceeds of the insurance policy securing the loan were paid to taxpayer in the sum of $22,567.57. The entire amount was due on the loan balance and was retained by taxpayer. Of this amount, taxpayer reported as income on its corporate return for the fiscal year ended June 30, 1961, a total gain of $16,106.42. This figure essentially represented the difference between taxpayer's actual cash outlays in connection with the Matson Music loan account and the total credits to that account -- i.e., it represented the financing charges taxpayer earned on the account. The tax paid on this gain was $6,626.48.
On June 28, 1963, taxpayer filed a claim for refund asserting that the insurance policy proceeds had been "received * * * by reason of the death of the insured" and consequently were exempt under Section 101(a) (1), supra.
In dismissing the taxpayer's complaint, the district court held the insurance policy proceeds were not paid to taxpayer "by reason of the death of the insured" within the meaning of Section 101(a) (1) but rather were paid to taxpayer by reason of the insured's indebtedness to it.
Taxpayer asserts that the words of the statute are unambiguous and that its refund claim is clearly within those words. The critical words are "received * * * by reason of the death of the insured."
Taxpayer argues that under the policy provisions set out above it alone was entitled to receive the proceeds of the policy from the insurer solely upon proof of the death of Carl Matson. It urges that this is all the clear words of the statute require to make the exemption applicable.
Taxpayer further maintains that any duty it might have had to pay over any part of the proceeds to other parties is completely irrelevant because the statute makes the exemption available to the ...