*221OPINION.
Trammell:There are two questions presented in this appeal. (1) Whether the amount of premiums paid on life insurance policies taken out by the taxpayer on the lives of its officers may be included in invested capital; and (2) whether the so-called “ hypothecated profits not yet earned ” are income.
The Commissioner has allowed in the taxpayer’s invested capital the cash surrender value of the life insurance policies taken out on the lives of its officers as of the beginning of each taxable year. The taxpayer contends that the entire amount of premiums paid on such policies should be included in invested capital as the purchase price of an asset.
The statute provides that earned surplus shall be included in invested capital. However, it does not follow that the entire amount paid out each year as premiums on life insurance policies should be included in invested capital. A portion of such premiums is for current insurance during each of the years for which the payment is made and is not applicable to an asset having a life in excess of the year for which the payment is made. The capital value of the policy is not increased by the payment of that portion of the premium which is allocated to current earned insurance. It is only the amount of payments made each year to acquire or increase the capital investment which can be included in earned surplus. See Appeal of E. A. Armstrong, 1 B. T. A. 296. The earned surplus, with respect to the insurance policies, is the excess of the amount of premiums paid each year over the current annual insurance. In the absence of evidence that the cash surrender value represented anything other than the payments in excess of the current annual insurance, the determination by the Commissioner that the amount of the cash surrender value should be included in computing invested capital is approved.
With respect to the second question, an illustration of the conditions surrounding a sale will give a better understanding of the problems before us.
The method employed by the taxpayer in disposing of the houses constructed by it was as follows:
*222The taxpayer would sell a house for $4,000 and require an initial payment of $500. Arrangements were made whereby the purchaser would give a mortgage to a building and loan association for $3,500. As the association did not consider the property adequate security for more than $2,500, it would pay over to the taxpayer only $2,500 and retain $1,000 until the purchaser had paid to it that amount in monthly payments; then it would pay over to the taxpayer the $1,000. The taxpayer was required by the building association to give its bond, in the form set forth in the fourth finding, as collateral security for this sum. The execution of the deéd to the purchaser, the mortgage by the purchaser to the building and loan association, and the bond by the taxpayer to the building and loan association were simultaneous transactions.
The Commissioner treated a transaction as completed with a realization of gain at the time of each sale. If we should be governed by the form of the transaction, the taxpayer received the entire cash payment for each house sold. It received $500 cash on a $4,000 house. The purchaser then placed a $3,500 mortgage with a building association, received the cash and paid the taxpayer in full. The taxpayer gave a deed to the purchaser. As a next step, however, which was simultaneous with the above transaction, the taxpayer assigned and transferred $1,000 of the money back to the building association as further security of the mortgage given by the purchaser. This is illustrated by the contract of the taxpayer with the building association, set out in the fourth finding. Looking, however, through the form to the substance, the taxj>ayer did not in substance receive the $1,000. This $1,000 is retained by the building association until the purchaser pays at least that amount on the mortgage. Out of the transaction the taxpayer does, in fact, receive in cash as much as $3,000 on the sale of the $4,000 house and the balance of $1,000 is retained by the building association. With respect to that $1,000 the building association merely acts as a collecting agent for the taxpayer and it is paid to the taxpayer out of the first money received in settlement of the mortgage. There is no question here of an installment sale. The taxpayer receives in cash as much as three-fourths of the purchase price of each house. If it receives the remaining $1,000 in installment payments, such a transaction does not come within the provisions of section 1208 of the Revenue Act of 1926 with respect to installment sales.
In view of the foregoing, we are of the opinion that, since the taxpayer was on the accrual basis, the action of the Commissioner in including in the taxpayer’s income $34,879 for 1920, and $19,388 for 1921, on account of such transactions, was correct. The fact that a portion of the purchase price for the property was assigned or left in the hands of the building association to insure mortgage pay*223ments by the purchaser and that the actual payment to the taxpayer was deferred does not, in our opinion, justify the taxpayer in excluding these amounts from income when it kept its books on the accrual basis.
The deficiencies are: $3,0%5.8% for 1919; $13,13749 for 19W; and $%79.97 for 19M. Order of redetermination will be entered accordingly.
Siiitii, SterNi-iageN, GeeeN, and MoRRis concur in the result only.