*42 Decision will be entered under Rule 50.
Amounts received by petitioner from the employer of her deceased husband under the employment contract in effect at his death, held not excludible from her gross income as "life insurance."
*117 A deficiency in petitioner's income tax for the years 1953 and 1954 in the respective amounts of $ 3,171.13 and $ 10,034.35 is in controversy. Petitioner also claims an overpayment for the year 1953. The issue is whether amounts*43 received by petitioner from the employer of her *118 deceased husband are excludible from her gross income as being life insurance. Respondent now concedes that if this question is answered in the negative, petitioner is entitled to deductions for the portion of the estate tax on her husband's estate attributable to the inclusion therein of the amounts in controversy here. Respondent's computations of such deductions are $ 3,431.67 for the year 1953 and $ 2,958.34 for the year 1954.
FINDINGS OF FACT.
The evidence in this case consists of a written stipulation of facts, with exhibits annexed thereto, and admissions by respondent in his answer to the petition. All are hereby found accordingly.
Petitioner is an individual with her principal residence at 47-25 40th Street, Sunnyside, New York.
Petitioner timely filed her individual income tax returns for the taxable years ended December 31, 1953 and 1954, with the then district director of internal revenue for the first district of New York.
On December 10, 1958, respondent duly issued his notice of deficiency to petitioner, together with a statement setting forth petitioner's tax liability for the taxable years ended December*44 31, 1953 and 1954, his proposed adjustments to petitioner's reported taxable income, and explanations of such adjustments.
Supreme Sunrise Food Exchange, Inc., was chartered in the State of New York on February 25, 1936, to operate supermarkets. Prior to February 1951 the business was conducted by several subsidiary corporations and partnerships operating separately, but having common ownership. In February 1951 the company was reorganized so as to acquire ownership of all such businesses which it then operated directly and through wholly owned subsidiary corporations.
In February 1951 and up to the date of his death on October 31, 1952, David Essenfeld, husband of petitioner, owned 25 percent of the outstanding stock of Supreme Sunrise Food Exchange, Inc.
Philip Kessler and Morris Rapoport each owned 25 percent of the outstanding stock of Supreme Sunrise Food Exchange, Inc., and Isidor Pols and his son, Abner Pols, owned the remaining 25 percent of the outstanding stock of the aforementioned corporation.
From March 1, 1951, until his death on October 31, 1952, David Essenfeld was treasurer and director of Supreme Sunrise Food Exchange, Inc.
In June 1953, after the death of David*45 Essenfeld, the name of the corporation was changed from Supreme Sunrise Food Exchange, Inc., to Sunrise Supermarkets Corp.
On March 1, 1951, David Essenfeld, Philip Kessler, Morris Rapoport, and Isidor Pols executed identical agreements with the Supreme *119 Sunrise Food Exchange, Inc., which agreements provided, in part, for employment for a 10-year period commencing with March 1, 1951; compensation for services starting with $ 17,500 per annum plus 2 1/2 percent of the net consolidated profits after taxes over and above $ 240,000 and increasing the compensation by $ 2,500 each year until the compensation reached $ 25,000 per annum plus 2 1/2 percent of the net consolidated profits over and above $ 240,000.
Provision was also made for continued compensation for a period of 2 years in the event of total incapacity and for retirement pay of $ 30,000 ($ 15,000 per year for a 2-year period) in the event that the individuals performed their duties during the full 10-year term of the agreement; in the event of death before the individuals received the full amount of the incapacity benefit ($ 50,000) or retirement allowance ($ 30,000), the unpaid balance of such benefit was to be paid*46 to the surviving widow or, if there was no surviving widow, to the surviving children.
In addition to the foregoing, the agreement provided that the widow or surviving children of the individual signatory of the agreement would receive a total of $ 50,000 if the individual died at any time during the 10-year term of the contract. If death were to occur at any time after the 10-year term of the contract, no amount would be paid to the widow or surviving children under this provision of the contract.
The bonus provision of the agreement which provided for additional compensation of 2 1/2 percent of net consolidated profit, after taxes, in excess of $ 240,000, became operative in the fiscal year ended January 31, 1955, when $ 4,957.71 was available for distribution in accordance with the bonus provision. Subsequently, on January 10, 1956, the bonus base was raised from $ 240,000 to $ 400,000.
On March 1, 1951, the ages of the individuals who executed the agreement (referred to above) were as follows:
| Isidor Pols | 64 |
| Philip Kessler | 50 |
| Morris Rapoport | 38 |
| David Essenfeld | 57 |
On June 27 and July 7, 1950, the Continental Assurance Company issued life insurance policies in the *47 respective amounts of $ 45,000 and $ 30,000 on the life of Dave (David) Essenfeld. The semiannual premiums were $ 936.90 and $ 624.60, respectively, a total of $ 3,123 per annum.
At the date of the execution of the aforementioned agreement and at all times thereafter, only the lives of Philip Kessler, Morris Rapoport, and David Essenfeld were insured by insurance companies. The *120 face amount of the insurance carried on the lives of the aforementioned individuals totaled $ 225,000, distributed as follows:
| Face amount | |
| Name of insured | of insurance |
| Philip Kessler | $ 75,000 |
| Morris Rapoport | 75,000 |
| David Essenfeld | 75,000 |
| Total | 225,000 |
The Supreme Sunrise Food Exchange, Inc., was the owner and beneficiary of, and paid the premiums on, all the aforementioned policies.
David Essenfeld died on October 31, 1952. Subsequent to the death of David Essenfeld and prior to the end of its fiscal year ended January 31, 1953, the Supreme Sunrise Food Exchange, Inc., received $ 75,000 representing the proceeds of the two life insurance policies.
On November 28, 1952, the following resolution was passed by the Supreme Sunrise Food Exchange, Inc.:
Whereas, under the terms *48 of contract between the late David Essenfeld and the Company, it is provided that at the time of the death of David Essenfeld his surviving widow is to be paid in the sum of $ 25,000.00 per year for two (2) years in equal monthly installments dating from the death of Mr. Essenfeld, and
Whereas, said David Essenfeld had died during the term of his employment,
Now Therefore, it is resolved that Mrs. David Essenfeld, the surviving widow is hereby entitled to receive the total sum of $ 50,000.00 for a period of two (2) years, $ 25,000.00 per year in equal monthly installments and the officers are directed to make such payments.
Marian Essenfeld, the petitioner, received the following amounts pursuant to the foregoing resolution:
| Calendar year | Amount |
| 1952 | $ 4,166.66 |
| 1953 | 25,000.00 |
| 1954 | 20,833.34 |
| Total | 50,000.00 |
The corporation continued to pay the premiums on the insurance policies covering the lives of Philip Kessler and Morris Rapoport and continued as owner and beneficiary of the policies until January 10, 1959, when the aforementioned individuals paid to the corporation the following amounts which represented the then cash surrender value of the policies ($ 75,000*49 face amount each) covering their lives:
| Cash surrender | |
| Individual | value |
| Morris Rapoport | $ 9,932.61 |
| Philip Kessler | 11,226.00 |
| Total | 21,158.61 |
*121 Upon payment of the cash surrender value to the corporation, the aforementioned individuals received the policies and became the owners thereof.
On January 10, 1956, the original agreement dated March 1, 1951 (referred to above), was modified in the following manner as to Isidor Pols, Morris Rapoport, and Philip Kessler: (a) The expiration date of the agreement was extended from March 1, 1961, to February 28, 1966; (b) the base over which they were to receive a bonus was increased from $ 240,000 to $ 400,000; and (c) an expense allowance of $ 7,500 per annum was added.
The Grand Union Company acquired controlling interest in the Sunrise Supermarkets Corp. (formerly Supreme Sunrise Food Exchange, Inc.) on or about October 10, 1958, by exchanging its stock for the stock of the Sunrise Supermarkets Corp. held by eight principal stockholders including Isidor Pols, Morris Rapoport, and Philip Kessler.
The Sunrise Supermarkets Corp. continued in existence but the agreement dated March 1, 1951 (referred to above), as*50 amended on January 10, 1956, was canceled and in lieu thereof it was agreed that Philip Kessler, Isidor Pols, and Morris Rapoport were each to receive $ 25,000 per annum for 5 years.
The Supreme Sunrise Food Exchange, Inc., reconciled its consolidated earned surplus as at January 31, 1953, in the following manner:
| Balance -- Feb. 1, 1952 | $ 334,614.08 | ||
| Add: Consolidated net profit for the | |||
| fiscal year ended Jan. 31, | |||
| 1953 -- after taxes | 274,540.00 | ||
| 609,154.08 | |||
| Add: Life insurance proceeds | $ 75,000.00 | ||
| Less: Payments to widow of deceased | |||
| officer | $ 6,249.99 | ||
| Reserve for payments to widow | |||
| of deceased officer | 43,750.01 | 50,000.00 | 25,000.00 |
| 634,154.08 | |||
| Less: Dividends | 96,300.00 | ||
| Life insurance on officers | 4,973.25 | ||
| Federal income tax adjustment | 520.40 | 101,793.65 | |
| Balance -- Jan. 31, 1953 | 532,360.43 |
In a report of examination of the estate of David Essenfeld, the $ 50,000 received by petitioner herein was added to the reported gross estate of David Essenfeld for estate tax purposes to the extent of $ 48,247.63 with the explanation that the item represented a bonus paid to petitioner*51 "in accordance with a contract between the decedent and Supreme Sunrise Food Exchange, Inc. * * *" In the present *122 notice of deficiency covering the years ended December 31, 1953 and 1954, no deduction was allowed petitioner for a portion of estate tax attributable to the inclusion of the aforementioned amount in the estate of petitioner's husband.
On March 4, 1955, petitioner filed a timely claim for refund of the income tax paid by her for the taxable year ended December 31, 1953. The reason submitted appeared in the claim as follows:
$ 20,000 -- nontaxable widow's salary shown on return as taxable income reported in error.
Respondent eliminated $ 5,000 of the amounts received from the employer, consisting of $ 4,166.66 received in 1952 and the "balance of exclusion under section 22(b)(1)(B)" of $ 833.34 for 1953, and determined the deficiencies herein by including the remaining amounts received from the employer in petitioner's income for 1953 and 1954.
OPINION.
Petitioner's sole contention is that the payments in controversy should be excluded from her taxable income as being "life insurance." To whatever extent a death benefit provision in an employment contract*52 may be similar to a conventional policy of life insurance, see Commissioner v. Treganowan, 183 F. 2d 288 (C.A. 2, 1950), reversing 13 T.C. 159 (1949), certiorari denied 340 U.S. 853, Congress has created an unavoidable distinction between the two in their tax treatment 1*54 by enacting two separate subdivisions of the same section applying to each separately. See Haynes v. United States, 353 U.S. 81 (1957), footnote 4. Even if an employer's promise to make payments upon the death of an employee can be called "life insurance," see Mary Tighe, 33 T.C. 557, 564 (1959), it is a kind of life insurance which is separately described and singled out for special treatment. 2And a specific statutory enactment takes precedence over one more general even if the latter might otherwise appear to govern. *123 It is an old and familiar rule that, "where there is, in the same statute, a particular enactment, and also a general one, which, in its most comprehensive sense, would include what is embraced in the former, the particular enactment*53 must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment." * * * [United States v. Chase, 135 U.S. 255, 260 (1890).]
Ginsberg & Sons v. Popkin, 285 U.S. 204 (1932); Liberty Finance Service, Inc., 34 T.C. 682, 687 (1960).
That the distinction so created was not accidental appears from the legislative*55 history. Prior to 1951 there was no express provision dealing with the kind of payment involved here. In that year section 22(b)(1)(B) was added to the 1939 Code. Its purpose was to make clear that the kind of payment here in issue would be assimilated to life insurance, but only to a limited extent, and not beyond the relief respondent has already accorded to petitioner.
Section 22(b)(1) of the code excludes from gross income amounts received under a life-insurance contract paid by reason of the death of the insured, whether in a single sum or otherwise. However, by its terms, this provision is limited to life-insurance payments, and the exclusion does not extend to death benefits paid by an employer by reason of the death of an employee. In order to correct this hardship, section 302 of your committee's bill excludes from gross income death benefits not in excess of $ 5,000 paid by any one employer with respect to any single employee's beneficiary or beneficiaries in accordance with a preexisting contract. The limitation of the exclusion to payments not in excess of $ 5,000 will prevent abuses under this new provision. [S. Rept. No. 781, 82d Cong., 1st Sess., p. 50 (1951).]
*56 There may, of course, be situations where the earlier, rather than the later enactment would govern, as where the employee is in fact the beneficial owner of a policy nominally designating the employer as the insured. Rhodes v. Gray, 175 F. Supp. 208 (W.D. Ky. 1959). But here the policy on the employee's life was clearly the property of the employer. Its amount was greater than what was paid, or payable, to the employee and the balance was retained by the employer; the other employees, when they came to acquire similar policies applying to them, were required to pay the employer for them; the employer was the designated beneficiary and paid the premiums and there is no suggestion that the employee was ever considered as being required to include any portion of the premiums as part of his compensation. See Oreste Casale, 26 T.C. 1020 (1956), revd. 247 F. 2d 440 (1957).
*124 It seems clear that these payments were made to petitioner under the contract by which her husband was employed. They take the place of benefits which the employee would, and undoubtedly expected to, receive as *57 compensation had he lived. As such they are not life insurance, nor indeed, as respondent now concedes, in any other way a part of the husband's taxable estate, but are "income in respect of a decedent" taxable to petitioner under section 126(a)(1)(B) of the 1939 Code. Petitioner refers us to no authority to the contrary.
To take account of adjustments for deductions now conceded by respondent,
Decision will be entered under Rule 50.
Footnotes
1. SEC. 22. GROSS INCOME.
(b) Exclusions from Gross Income. -- The following items shall not be included in gross income and shall be exempt from taxation under this chapter:
(1) Life insurance, etc. -- Amounts received --
(A) under a life insurance contract, paid by reason of the death of the insured; or
(B) under a contract of an employer providing for the payment of such amounts to the beneficiaries of an employee, paid by reason of the death of the employee;
whether in a single sum or otherwise (but if such amounts are held by the insurer, or the employer, under an agreement to pay interest thereon, the interest payments shall be included in gross income). The aggregate of the amounts excludible under subparagraph (B) by all the beneficiaries of the employee under all such contracts of any one employer may not exceed $ 5,000.↩
2. This is not to say that we agree with petitioner that by any stretch of the statute the employment contract under which the payments were made was life insurance. As to petitioner's husband, there was no "risk sharing" by the employer, who would have to be considered the insurer. In the husband's case, the entire risk was transmitted to the life insurance company. Petitioner's argument can be summed up by the following quotation from her brief. "But, even if it be decided that the risk was not distributed to insurance companies by way of insurance policies, it is submitted that this conclusion is not fatal to the petitioner's case. Paragraph 4 would still be an insurance contract with the corporation the insurer, David Essenfeld the insured, and the petitioner the beneficiary. The only difference would be that the risk would be distributed ultimately to the other stockholders * * *" (Emphasis added.) Such a contention would be available in most employee cases and section 22(b)(1)(B)↩ would become a dead letter.