*1778 In October, 1925, the petitioner irrevocably assigned certain insurance policies on his life to his wife as trustee. All beneficiaries of the trust, except one, were such institutions as are described in section 214(a)(10) of the Revenue Acts of 1924 and 1926. At the time of the assignments the policies had a cash surrender value. Thereafter the petitioner paid premiums on the policies. Held, with the exception of the premium payments and the cash surrender value allocable to the one beneficiary who does not come within section 214(a)(10), the petitioner is entitled to deduct the amounts thereof as contributions or gifts.
*1037 The Commissioner determined deficiencies of $1,958.56 and $4,273.47 in the petitioner's income taxes for the years 1925 and 1926. The petitioner alleges that the Commissioner erred (1) in disallowing as deductions from his gross income for each year the premiums paid on certain insurance policies on his life, which on October 15, 1925, he irrevocably assigned to a trust, all the beneficiaries of which, except one, were*1779 institutions of the nature described in section 214(a)(10) of the Revenue Acts of 1924 and 1926, and (2) in disallowing as a deduction for 1925 the cash surrender value of such policies. The cases were consolidated.
FINDINGS OF FACT.
The parties filed the following stipulation with respect to the year 1925:
1. On various dates prior to February 1, 1922, petitioner took out 18 certain policies of insurance on his life, true photostat copies of which are annexed hereto marked Exhibits "A" to "R" inclusive. All of said policies were in full force and effect during the entire year 1925.
2. On or about February 1, 1922 petitioner entered into a certain trust agreement, a true copy of which is annexed hereto and marked Exhibit "S." Said agreement was in full force and effect during the entire year 1925. The policies of life insurance listed in Exhibit "A" to said agreement, Exhibit "S" hereto, are the same policies of life insurance of which photostat copies are annexed hereto as Exhibits "A" to "R."
3. On October 14 and 15, 1925 the petitioner made absolute assignments of all of the said life insurance policies, Exhibits "A" to "R," to the trustee named in the agreement, *1780 Exhibit "S," as such trustee and for the purposes of said trust, and not otherwise. By said acts of assignment the trustee named in said Exhibit "S," became the beneficiary of said life insurance *1038 policies as such trustee without possibility of change by the petitioner, and, as such trustee, became irrevocably entitled to the proceeds of said life insurance policies.
4. During the calendar year 1925 the petitioner paid premiums upon the said life insurance policies, Exhibits "A" to "R" hereto, aggregating $6,334.24. Of said amount the petitioner paid $3,067.36 subsequent to October 15, 1925.
5. All of the beneficiaries of the trust created under the terms of Exhibit "S" hereto and listed in Exhibit "B" to said Exhibit "S," with the exception of J. C. Ainsworth, an individual, are religious, charitable, scientific, literary or educational institutions of the nature described in Section 214(a)(10) of the Revenue Act of 1926.
6. Under the terms of Exhibit "S" hereto 97.05882% of the proceeds of the insurance policies, Exhibits "A" to "R" hereto, is payable by the trustee of the trust created by said Exhibit "S" to or for the use of religious, charitable, scientific, *1781 literary or educational institutions of the nature described in Section 214(a)(10) of the Revenue Act of 1926.
7. The petitioner paid Federal Income Taxes for the year 1925 amounting to $26,051.22 during the year 1926.
8. The aggregate cash surrender value of the life insurance policies, Exhibits "A" to "R" hereto, on October 14 and 15, 1925 was $25,769.39.
Except for the facts stated in paragraphs 4, 7 and 8, a similar stipulation was filed with respect to the year 1926.
The petitioner is an individual residing in Erie, Pa. The insurance policies in question had an aggregate value at maturity of $170,000. Some of them were originally made payable to certain organizations of the type specified in section 214(a)(10) of the Revenue Act of 1926, and some to the petitioner's "executors, administrators or assigns." Under the original terms of all the policies the petitioner had the right to change the beneficiary or beneficiaries named therein.
The trust agreement of February 1, 1922 was in part as follows:
WHEREAS, first party [the petitioner] is desirous of making provision by insurance upon his life, for the benefit of various persons and charitable institutions, *1782 and in order to effectuate said purpose desires that second party [Mary B. Behrend] shall act as Trustee to receive and disburse the proceeds of said insurance in the manner hereinafter provided:
NOW, THEREFORE, in consideration of the premises and of the sum of One ($1.00) Dollar by each party to the other in hand paid, receipt of which is hereby acknowledged, it is agreed as follows:
(1) First party agrees to assign or cause to be made payable to second party as Trustee, the various policies of insurance enumerated on the schedule hereto annexed, marked "Exhibit A", * * *
(2) Second party agrees that she will receive the amounts which may become payable to her as Trustee and beneficiary in said policies, and will thereupon pay the same over to the various persons and institutions named in the schedule hereto annexed, marked "Exhibit B", and made a part hereof, in the several amounts shown by said schedule. * * *
The schedules annexed to the above agreement, and marked "Exhibit A" and "Exhibit E" contain a list of the insurance companies by which the policies upon the petitioner's life were issued, *1039 the policy number of each policy, the value at maturity of*1783 each policy, the names of twenty-two beneficiaries of the trust, and the amount to be paid by the trustee to each, the sum of which equals $170,000. J. C. Ainsworth is named as a beneficiary of the trust to the extent of $5,000.
Immediately prior to October 14, and 15, 1925, the petitioner had the right to surrender the policies for their cash surrender value. In 1926 he paid premiums on the policies in the amount of $9,621.98.
During the years in question the petitioner kept his accounts and filed his income-tax returns on the cash receipts and disbursements basis. In his return for 1925 he deducted from his gross income $14,141.29 as contributions, in addition to $7,834.24 on account of the payment of the premiums on the policies in question. The Commissioner disallowed the latter item, and determined the petitioner's net income to be $148,148.38. In his return for 1926 the petitioner deducted $9,621.98 on account of the payment of the premiums on the policies. The Commissioner disallowed the deduction and determined that the petitioner's net income for that year was $182,192.51.
OPINION.
MURDOCK: It is well settled that insurance policies may be the subject of*1784 gifts. ; ; ; ; ; ; . Furthermore, it has been recognized that the continued payment of premiums by the insured on policies in which a beneficiary is irrevocably named, or which have been irrevocably assigned, constitute additional gifts to such beneficiary or assignee. See ; ; Cf. . As long as the insured has the right to change the beneficiary of an insurance policy, the latter has only an interest which is subject to be defeated by an exercise of that right. See ; *1785 ; ; . While the right exists the insured has complete control and dominion of the policy. . When, however, the insured names a beneficiary irrevocably, the beneficiary acquires a vested interest which may not be defeated.
In , we held that a taxpayer was not entitled to deduct as contributions of gifts the premiums *1040 paid on a life insurance policy on his own life where he named as beneficiaries certain charitable and religious corporations, but reserved the right to change the beneficiaries. The petitioner concedes that he is not entitled to deduct the amount of any premiums on the policies in question prior to the time he irrevocably assigned them.
Sections 214(a)(10) of the Revenue Acts of 1924 and 1926 provide that an individual, in computing net income, shall be allowed to deduct certain contributions or gifts made*1786 within the taxable year. If these contributions or gifts are either to or for the use of any corporation, or trust, or community chest, fund or foundation, organized and operated exclusively for certain purposes, they are deductible. There was a similar provision in the Revenue Act of 1921, but the corresponding provision of the Revenue Act of 1918 was quite different. Under section 214(a)(11) of the Revenue Act of 1918, a contribution or gift to be deductible had to be made to corporations organized and operated exclusively for purposes mentioned. It is therefore apparent that the provisions of the later acts are broader and allow deductions which were not allowed under the 1918 Act.
The petitioner makes no claim that the premium payments or the cash surrender value properly allocable to the insurance which will be payable for the use of Ainsworth is deductible. The respondent has only one objection to the allowance of a deduction representing 97.05882 per cent of all premiums paid after October 15, 1925. He says that the contributions or gifts were made to a trust; J. C. Ainsworth, an individual, was a beneficiary under the trust; and, therefore, the contributions*1787 or gifts made within the taxable year were not to or for the use of any trust organized and operated exclusively for the purposes mentioned. This contention might be well taken if these were the only words in the act upon which the petitioner's right to a deduction can be made to depend. However, the provisions of the acts can be read in this way: "In computing net income there shall be allowed as deductions * * * contributions or gifts made within the taxable year * * * for the use of any corporation or trust, or community chest, fund or foundation, organized and operated exclusively for religious, charitable, scientific, literary or educational purposes." Thus, it does not matter that the gift was to a trust organized and operated partly for Ainsworth, so long as it was in part for the use of the class of institutions mentioned in section 214(a)(10). The gift need not be exclusively for the use of any corporation organized and operated exclusively for the purposes mentioned. If the amount of the gift for the use of the corporation or trust organized and operated exclusively for *1041 these purposes can be determined, such portion of the gift may be deductible even*1788 though some part of the same gift may not be deductible. That is the situation here. 97.05882 per cent of the contributions or gifts made by the petitioner in the taxable years were for the use of institutions of the nature described in sections 214(a)(10) of the Revenue Acts of 1924 and 1926 and are therefore deductible, subject to the 15 per cent limitation.
This disposes of the only question raised by the parties in regard to the premiums. There remains the question of the deductibility of the cash surrender value of the policies on October 15, 1925, when the policies were irrevocably assigned so that no one outside the class could ever benefit from 97.05882 per cent of what might ever be realized on the policies. Cf. ;. When, on or about October 15, 1925, the petitioner made the irrevocable assignments of the policies, he in effect surrendered all of his rights under the policies and gave whatever interest he had in the policies for the use of the beneficiaries. The cash surrender value of the policies on that date is based upon years of actuarial experience, and this value is a convenient, *1789 reasonable and proper measure of the amount of the contribution or gift which the petitioner made on that date. Of this value, 97.05882 per cent was a deductible contribution or gift, subject to the 15 per cent limitation prescribed by the statute.
Judgment will be entered under Rule 50.