*951 Decedent during his lifetime contracted for certain life insurance with 5 companies, the petitioners herein. Prior to his death, he executed with each company a written settlement option contract. Under these contracts the decedent specified the beneficiaries, but reserved the right to change, and directed the companies, upon his death, to retain the proceeds and in certain instances to pay interest on such proceeds to his wife for life, with remainders over, and in certain other instances to pay certain amounts to certain beneficiaries in 120 monthly installments. Decedent died without making any further change in beneficiaries or any further agreements. His estate has at all times been insolvent. The Commissioner determined an estate tax liability, which has not been paid, and he proposes to assess that liability, together with interest thereon, against each petitioner as its liability as trustee and transferee under sections 315(b) and 316(a)(1) of the Revenue Act of 1926, as amended. In the case of each petitioner the value attributable to the amounts withheld for settlement with the beneficiaries by deferred payments is in an amount more than sufficient to satisfy the tax*952 and interest due thereon. Held, petitioners are liable for the tax and interest in question as transferees, under section 315(b) and section 316 of the Revenue Act of 1926, as amended.
*810 Pursuant to sections 315 and 316 of the Revenue Act of 1926, as amended, the respondent in notices of deficiency to each petitioner has proposed for assessment against each petitioner the sum of $5,002.46 as a "constituting your liability as trustee and transferee of life insurance included in the gross estate of Bert Hanna, deceased, for the purpose of Federal estate tax." Although each of the five petitions contains assignments of error, which not only deny that the respective petitioners are liable as trustees or transferees but also deny that there is any deficiency in estate tax due from the estate of Bert Hanna, deceased, the parties in their respective briefs, and in written stipulations of fact filed by them, hereinafter mentioned, recognize but one question for the Board to decide, namely, whether the petitioners are or any one of them is liable*953 either as trustee or transferee or as trustee and transferee, respectively, under sections 315(b) and 316(a)(1) of the Revenue Act of 1926, as amended, for the unpaid Federal estate tax of $5,002.46 determined to be due from the estate of Bert Hanna, deceased, plus interest as provided by law. Thue five proceedings were consolidated for hearing.
FINDINGS OF FACT.
Petitioners are all corporations and are engaged in the business of writing life insurance. Bert Hanna, sometimes hereinafter referred to as the decedent, died March 20, 1934. During his lifetime the decedent entered into contracts of life insurance on his own life with petitioners as follows:
| Name of life insurance company | Year contract entered into | Policy number | Face amount of insurance |
| John Hancock Mutual | 1918 | 973,613 | $45,350 |
| Do | 1918 | 973,614 | 5,000 |
| Do | 1920 | 976,522 | 11,000 |
| Northwestern Mutual | 1914 | 1,043,618 | 3,000 |
| Do | 1923 | 1,426,593 | 3,000 |
| Do | 1921 | 1,476,201 | 20,000 |
| Do | 1921 | 1,509,961 | 50,000 |
| Do | 1923 | 1,651,962 | 30,000 |
| Do | 1923 | 1,651,963 | 20,000 |
| Do | 1923 | 1,651,964 | 22,000 |
| Connecticut General | 1925 | 262,147 | 10,000 |
| State Mutual Life Assurance | 1923 | 192,584Ex | 10,000 |
| Equitable of Iowa | 1911 | 63,339 | 2,000 |
| Do | 1915 | 94,953 | 2,000 |
| Do | 1916 | 104,181 | 10,000 |
*954 Hanna reserved the right to change the beneficiary in each of the aforementioned contracts, and during June 1933 he changed the beneficiaries in each of the contracts by executing with each company a written settlement option contract in which he reserved to himself the right to further change the beneficiaries. These settlement option contracts were duly accepted by the respective insurance companies during June 1933 and became binding on both Hanna *811 and the respective companies. The decedent died without making any change in any of the aforementioned settlement option contracts.
Under the settlement option contract with John Hancock Mutual Life Insurance Co. the decedent named as the beneficiaries of the three policies with that company "his wife, Anna Hanna, his nephew, Bert Hanna, his nieces, Dorothy G. Hanna and Mary J. Hanna, the wife and children of his said nephew, and the children of each of his said nieces." Under this contract, the decedent directed that the proceeds of the three policies be left on deposit with the company and that the company pay interest thereon at not less than 3 1/2 percent per annum in equivalent monthly payments, beginning one month*955 after his death, to his said wife during her lifetime, and after her death, or if she shall predecease him, then after his death, to his said nephew and his said nieces during their lifetimes, except that when the nephew and nieces reached the age of 50 years (which would be in 1966, 1967, and 1968, respectively) he or she as the case might be could elect to receive his or her share in accordance with option three, which was a life income proposition the details of which are not material here. The settlement option contract also contained provisions for payment by the insurance company in the event of the death of the nephew or either of the nieces and further provided that, in the event of the death of the last survivor of the insured and all of the aforementioned beneficiaries before payment in full, the amount due, or the commuted amount of any unpaid installments, if any there be, shall be paid in one sum to the executors or administrators of such last survivor, and that this mode of settlement "shall not be varied by any beneficiary or beneficiaries."
The John Hancock Mutual Life Insurance Co. has at all times complied with the terms and conditions of each of the contracts*956 of life insurance and of the settlement option contract to which it is a party. Pursuant thereto the company has since the death of the decedent followed the terms and conditions of those contracts with respect to meeting its contractual liability thereunder.
Under the settlement option contract with the Northwestern Mutual Life Insurance Co. the decedent elected that the proceeds of the seven policies with that company should be aggregated and settled collectively, as follows:
(a) $10,000. of such proceeds shall be payable to Dee Hanna, brother, or in event of his death to Bessie Hanna, sister-in-law, in accordance with the provisions of Option C, payable monthly, 10 years guaranteed; provided however, in event of the death of Dee Hanna while receiving settlement under Option C, then Bessie Hanna shall continue under such option in accordance with its terms as to the stipulated installments remaining unpaid, if any. In event of the death of the survivor of Dee and Bessie Hanna, such portion or any remainder thereof shall be payable in one sum to Mark D. Hanna, nephew, if living, otherwise to the executors or administrators of Mark D. Hanna.
*812 Paragraphs (b), (c), *957 and (d) of the settlement option contract with the Northwestern Mutual Life Insurance Co. were substantially the same as paragraph (a) above quoted, except only that the beneficiaries were other and different relatives of the decedent. Under paragraph (e) the decedent directed that payment of the remaining proceeds of the seven policies with Northwestern be made to substantially the same beneficiaries as were named in the settlement option contract with the John Hancock Mutual Life Insurance Co. and in a manner essentially similar to the manner therein directed. The right "to surrender and withdraw or commute" was withheld from the beneficiaries. Option C mentioned in paragraph (a) above quoted is a part of the contracts of life insurance issued by the Northwestern Mutual Life Insurance Co.
The Northwestern Mutual Life Insurance Co. has at all times complied with the terms and conditions of each of the contracts of life insurance and of the settlement option contract to which it is a party. Pursuant thereto the company has since the death of the decedent met its liability under those contracts with respect to payments to the beneficiaries named.
Under the settlement option*958 contract with the Connecticut General Life Insurance Co., which contract was labeled "Trust Agreement No. TA-12505", the company and Bert Hanna (thereinafter called the insured):
* * * hereby agree that upon the death of the Insured the net proceeds then due under any policy of said Company made payable hereunder shall be paid to said Company, as Trustee-Beneficiary, to be held as a trust fund and disposed of as hereinafter stated. There is reserved to the Company the right to mingle the whole or any part of said fund with its general corporate assets as a part thereof, and the Company is hereby authorized to pay any taxes assessed upon the fund in its hand as Trustee.
This agreement shall be subject to and governed by the laws of the State of Connecticut * * *. The payees hereunder shall have no power to assign, commute or anticipate these payments or any part thereof, except as may be herein provided, and said fund and all payments of income or principal therefrom shall be exempt from all claims of creditors of the payees to the fullest extent permitted by law.
* * *
* * * Any interest payments hereunder shall be at the rate of 3 1/2% per annum but at the sole discretion*959 of the Company excess interest may be paid. Any commutations hereunder shall be at the rate of 3 1/2% compound interest per annum. * * *
Policy No. 262,147 with the Connecticut General Life Insurance Co. contained the following provision relative to additional methods of settlement:
Upon written request of the then legal owner, the Company will agree by endorsement to pay the proceeds of the policy in accordance with one of the following methods:
* * *
*813 Option C. Deposit in Trust. The proceeds of this policy may be left with the Company in trust to pay interest at the rate of not less than 3 1/2% per annum and at the termination of the trust to distribute the fund in accordance with the terms of the trust agreement.
Under the settlement option contract with Connecticut General the decedent directed that payment be made to the same beneficiaries as were named in the settlement option contract with the John Hancock Mutual Life Insurance Co. and in a manner essentially similar to the manner therein directed.
The Connecticut General Life Insurance Co. is now and at all times has been complying with the terms and conditions of the aforesaid insurance policy*960 and of the said settlement option contract and pursuant thereto has since the death of the decedent followed such terms and conditions with respect to payments to beneficiaries and otherwise.
Under the settlement option contract with the State Mutual Life Assurance Co. the decedent directed that, if his policy with that company should become a claim by reason of his death, payment should be made to the same beneficiaries as were named in the settlement option contract with the John Hancock Mutual Life Insurance Co. and in a manner essentially similar to the manner therein directed. The contract contained the following specific provisions:
No person entitled to any part of the proceeds of said policy or policies, or any instalments of interest thereon, shall be permitted to commute, anticipate, encumber, alienate, or assign the same, or any part thereof except upon my written authority filed with the Company during my lifetime: and - to the extent permitted by the laws either of the state in which said policy or policies were delivered or of the state which may have jurisdiction over the disposition of the proceeds - no payments of interest or principal shall be in any way subject*961 to such person's debts, contracts, or engagements, nor to any judicial processes to levy upon or attach the same for payment thereof.
It is agreed that the policy proceeds retained by the Company pursuant to this request shall not be deemed to be impressed with any separate trust, and shall be mingled by the Company with its general corporate funds.
The State Mutual Life Assurance Co. is now and at all times has been complying with the terms and conditions of the aforesaid insurance policy and of the said settlement option contract and pursuant thereto has since the death of the decedent followed such terms and conditions with respect to payments to beneficiaries and otherwise, and in that connection issued on March 31, 1934, a contract designated "Non-Negotiable Certificate of Indebtedness" No. 711 for the amount of $6,859.18. This certificate reads in part as follows:
IN CONSIDERATION of the surrender for cancellation of Policy No. 192584Ex issued by the Company on the life of Bert Hanna, therein called the insured, agrees to retain $6,859.18 of the proceeds of the said policy in accordance with the conditions and provisions thereof, and promises to pay * * *.
*814 *962 The "promises to pay" mentioned in the certificate were the same as those contained in the settlement option contract.
Under the settlement option contract with the Equitable Life Insurance Co. of Iowa the decedent directed that settlement of the three policies with that company be made to the same beneficiaries as were named in the settlement option contract with the John Hancock Mutual Life Insurance Co. and in a manner essentially similar to the manner therein directed. Among other things the settlement option contract provided:
I further direct that the beneficiaries herein named shall not have the right to anticipate, commute, assign or encumber any of the installments or income payable as above provided, except as herein authorized; and said installments or income shall not be subject to the claims of any creditor of the beneficiaries and shall be free from the interference or control of any such creditor.
The net proceeds or any part thereof retained by the Company, as above provided, may be mingled with the general corporate funds of the Company. This Direction for Settlement and Supplementary Contract shall be governed by the laws of the State of Iowa.
The*963 Equitable is now and at all times has been complying with the terms and conditions of the aforesaid policies and of the said settlement option contract and pursuant thereto has since the death of the decedent followed such terms and conditions with respect to payments to beneficiaries and otherwise, and in that connection has issued "Supplementary Contract No. 2580", in which are incorporated the terms and conditions of the settlement option contract and an additional provision as follows:
(12) THE PRESENT VALUE of the principal sum and interest due hereunder or of any installments remaining unpaid hereunder shall be secured by deposits of interest-bearing securities with the Insurance Department of the State of Iowa, as required by law.
In every instance the proceeds of the fifteen policies carried by the decedent in the five petitioners herein involved were mingled with the general corporate assets of the companies and appropriate records are maintained to show the liability of each company under the terms of the contracts involved.
The methods followed by the five petitioners in connection with the handling of their respective contractual liabilities upon the death of the*964 insured are in all material respects the same and any differences therein are mere differences in detail and not in principle. As illustrative of all the methods, the one followed by the John Hancock Mutual Life Insurance Co. is described in the following paragraphs.
Upon the death of the decedent an auditor's warrant was prepared in the claim department of the company, showing that the gross proceeds of the three policies carried by the decedent in that company *815 totaled, with distribution of surplus, $61,731.72. The auditor's warrant also states the amount of policy loans, and the interest and premiums due, and shows the net amount of the proceeds to be $41,953.06. This last amount is the net amount due under the account called "Supplementary Contracts Not Involving Life Contingencies", and is the net amount of the company's liability which became due and payable under the terms of the settlement option contract.
The actuarial department of the company maintains a supplementary card record for determining annually the liability of the company in connection with its obligations under the settlement option contract involved in this proceeding. This record is further*965 used in connection with the determination of the amounts, if any, due once each year, at the discretion and will of the board of directors, in addition to the guaranteed payments under the contract. This supplementary card record shows on its face that 3 1/2 percent is the guaranteed rate of interest under which the interest payments are determined in accordance with the contractual liability. In addition to the foregoing functions, the audit department uses the reverse side of the supplementary card record to indicate the dates of payments as they are made under the contract, and in this instance it is seen that the beneficiary of the contract received $119.73 in each of the months indicated.
On April 17, 1934, the company issued its first "voucher check" to Anna Hanna in the amount of $119.73 for the "Amt. of Monthly Instalment of Interest Due 4/20/34", which due date was one month from the date of the decedent's death. Stamped on the check was the notation "Claims on Supplementary Contracts Not Involving Life Contingencies." A like check has been drawn each month since the death of Bert Hanna, with the exception noted in the succeeding paragraph.
On March 17, 1936, the*966 company issued a "voucher check" to Anna Hanna in the amount of $231.74, on which was stamped "Amt. of Monthly Instalment of Int. Due 3/20/36 Includes $112.01 Excess Int." This check shows that the beneficiary received in addition to her monthly payment of interest in the amount of $119.73 an amount of $112.01 as "Excess Interest." The amount of $112.01 is the equivalent of an additional one-fourth of one percent on the amount originally left on deposit with the company.
Pertinent pages from the annual statement of the John Hancock Mutual Life Insurance Co. for the year 1934 show that $819.50 was credited during the year to renewal premiums on life insurance; that $41,953.06 was credited to the account labeled "Consideration for supplementary contracts not involving life contingencies"; that $1,320.16 was credited to an account labeled "Gross interest on premium notes, *816 policy loans and liens"; that $61,350 was debited to an account labeled "Death claims"; that $381.72 was debited to an account labeled "Dividends to policyholders paid in cash or applied in liquidation of loans or notes"; and that $17,639 was credited to an account labeled "Loans made to policyholders*967 on this company's policies assigned as collateral."
At no time have the books of John Hancock Mutual Life Insurance Co. shown a separate fund or a segregated fund in connection with the amount of the proceeds under the insurance left by the decedent. Such funds have at all times been mingled with the insurance company's general corporate funds. The company must pay Anna Hanna 3 1/2 percent on the proceeds left with the company during her life, regardless of whether the company makes 3 1/2 percent on its general corporate funds. The John Hancock Mutual Life Insurance Co. has no trust assets. Its records and reports are approved each year by the Commonwealth of Massachusetts.
In the case of each petitioner the value attributable to the amounts withheld for settlement with the beneficiaries by deferred payments under the aforementioned contracts with each petitioner is in an amount more than sufficient to satisfy the tax and interest here involved.
The executrix of the estate of Bert Hanna, deceased, filed a Federal estate tax return for the estate with the collector of Internal Revenue at Detroit, Michigan, on April 25, 1935, and included in this return, as a part of the*968 decedent's gross estate under section 302(g) of the Revenue Act of 1926, the excess over $40,000 of the amount receivable by all beneficiaries as insurance under policies taken out by the decedent upon his own life. This inclusion was not disturbed by the respondent.
The estate of Bert Hanna, deceased, as of the date of the decedent's death, and at all times subsequent thereto, was, and is, insolvent and no part of the Federal estate tax or interest in controversy in this proceeding has been paid.
The notices of liability involved in the instant proceedings were mailed to each petitioner on April 26, 1938. The first sentence of each notice was as follows: "Pursuant to sections 315 and 316 of the Revenue Act of 1926, as amended, there is proposed for assessment against you the sum of $13,881.43 [$7,696.61 in Docket No. 94791; $6,905.18 in Docket No. 94792; and $9,687.88 in Docket No. 94793], constituting your liability as trustee and transferee of life insurance included in the gross estate of Bert Hanna, deceased, for the purpose of Federal estate tax." On June 9, 1938, the respondent addressed a letter to each petitioner, in which the respondent conceded that due to certain*969 additional deductions not material here the total principal amount of Federal estate tax involved in each proceeding was $5,002.46 instead of the amounts indicated in the respective notices dated April 26, 1938.
*817 We believe this constitutes a finding of all the material facts involved, but we incorporate herein by reference as a part of these findings the stipulations of facts which were filed by the parties and are referred to in our preliminary statement.
OPINION.
BLACK: In each proceeding the parties have stipulated that "The sole question presented to the Board for decision in the instant proceeding is whether the petitioner is liable for payment of the aforesaid Federal estate tax, plus interest thereon, as trustee and transferee within the meaning of sections 315(b) and 316 of the Revenue Act of 1926, as amended."
Section 315(b) of the Revenue Act of 1926, as amended by section 803(c) of the Revenue Act of 1932, and the material parts of section 316 of the Revenue Act of 1926 are printed in the margin. 2
*970 Although the respondent in his notices of liability determined that each petitioner was liable both as trustee and transferee, in his brief he says "The respondent's argument will be confined to the proposition that the petitioners are liable as transferees within the meaning of Section 315(b)." We shall, therefore, first consider that proposition.
*818 Are petitioners, within the meaning of section 315(b), transferees of the proceeds of the policies of insurance which were left on deposit with the insurance companies upon decedent's death? We think they are. It must be assumed that Congress in the enactment of section 315(b) of the Revenue Act of 1926 as amended used the word "transferee" in its ordinary and commonly understood meaning. The word "transferee" is defined in Bouvier's Law Dictionary, vol. 3, p. 3308, and Black's Law Dictionary, p. 1748, as follows: "He to whom a transfer is made."
Each of the policies of insurance involved in this proceeding was taken out by decedent, Bert Hanna, on his own life and was made payable to beneficiaries other than his own estate. In each of the policies decedent reserved the right to change the beneficiaries and this right*971 was outstanding at his death. Therefore at decedent's death the obligations of the insurance companies on these policies were (1) to pay to the decedent the cash surrender values; (2) to pay to his executor or administrator the face amounts of the policies and accumulations in the event that he so designated; (3) in the event that he failed during his lifetime to make any changes of beneficiaries, to retain the net proceeds of the policies and pay the same to the beneficiaries designated on the several settlement option contracts.
Since the decedent did not elect during his lifetime to accept the cash surrender values or to require payment of the proceeds to his executor or administrator, the entire face value of the policies came into the possession of the insurance companies at his death, to be used in making payments under the settlement options. Where the proceeds of a policy of insurance are paid to a beneficiary in a lump sum upon the insured's death then of course the beneficiary of the insurance policy is the transferee of the proceeds of the insurance policies and not the insurance companies. The respondent so concedes. But where upon the death of the insured the insurance*972 company at the direction of the decedent pays over the proceeds of the policy to itself, to be held on deposit for deferred settlements with the named beneficiaries, it is a transferee. Whether it is a transferee liable for the tax depends upon considerations which we shall discuss later. It is of course true that such transfers as these are only book entries, but they are of substantial and important consequence.
As said by the Supreme Court, Appellate Division, of the State of New York, in In re Scott's Will, 293 New York Supplement 126; affirmed per curiam by the Court of Appeals of New York at 274 N.Y. 538; 10 N.E.(2d) 538; certiorari denied by the United States Supreme Court at 302 U.S. 721, "* * * upon the death of the insured there is a transfer to the insurance company of property, the proceeds of the policy, and, while this transfer may be simply a matter of bookkeeping involving no segregation of specific funds, *819 there is a sufficient change to justify the application of the provisions of section 124 of the Decedent Estate Law."
Petitioners contend that the above cited New York case is inapplicable to the instant*973 case because section 124 of the Decedent Estate Law of the State of New York is an entirely different statute from section 315(b) and section 316 of the Federal estate tax law. That the two statutes are entirely different is of course true. But if the New York courts were correct in the Scott's Will case, in holding the Northwestern Mutual Life Insurance Co. liable to the executor of Scott's estate for a proportionate part of the Federal and state estate taxes which the executor had paid because of the transfer of proceeds of policies of insurance which it had received to hold on deposit for purposes of deferred settlement with the designated beneficiaries, then we think by the same line of reasoning petitioners are liable for the tax here involved, under section 315(b).
It seems to us that the Northwestern Mutual Life Insurance Co. in In re Scott's Will, supra, was making substantially the same contention that petitioner are making in the instant case, to wit: That in retaining the proceeds of insurance upon the insured's death and making deferred settlements with the beneficiaries it had not received any transfer of the decedent's assets.
What were the provisions*974 of section 124 of the Decedent's Estate Law of New York, involved in In re Scott's Will, supra? Justice Dore in his dissenting opinion in that case states the provisions of section 124 to be as follows:
Section 124 of the Decedent Estate Law relates to the apportionment of federal and state taxes, and, so far as relevant, provides that, when an executor has paid a death tax on property required to be included in the gross estate, the amount of the tax so paid, unless the testator otherwise directs in his will, "shall be equitably prorated among the persons interested in the estate to whom such property is or may be transferred or to whom any benefit accrues," and that such prorating shall be made "in the proportion, as near as may be, that the value of the property * * * of each such person bears to the total value of the property * * * received by all such persons interested in the estate." Then follow provisions for the allowance of exemptions and other provisions not here relevant. After providing that, unless otherwise directed by the will, the executor shall pay the taxes, the section further provides that in all cases in which any property required to be included in the*975 gross estate does not come into the possession of the executor as such "he shall be entitled, and it shall be his duty, to recover from whomever [thus in the original] is in possession, or from the persons interested in the estate, the proportionate amount of such tax payable by the persons interested in the estate with which such persons * * * are chargeable under the provisions of this section, and the surrogate may be order direct the payment of such amount of tax by such persons to the executor."
Now it must be remembered that it is not every transferee of assets that is liable for the debts of the transferor, including taxes. Only those transferees who are liable at law or in equity can be held under section 316. The respondent in this case is not making any *820 claim that petitioners are liable in equity as the transferees of decedent's assets. A liability of a transferee under the general principles of equity involves entirely different considerations from a liability of a transferee made liable by specific law. In the instant case it is respondent's contention that petitioners are liable in law as transferees because section 315(b) imposes a personal liability*976 upon the transferee, trustee, or beneficiary of decedent's assets for the unpaid estate tax limited to the value of the property received, and that petitioners have each received as transferees a transfer of such assets of a value in excess of the deficiency.
It is clear, of course, that, unless petitioners are transferees as that term is used in section 315(b), no legal liability is imposed upon them by that section. It is also clear, we think, that petitioners were not beneficiaries as that word is used in clause (2) of section 315(b). Respondent does not argue that they were. His contention is that they were transferees.
Petitioners argue that the language of section 315(b) shows plainly that, in the case of insurance policies payable to beneficiaries other than decedent's estate, it was the intention of Congress to fix a personal liability only on the specific beneficiaries of such insurance policies and no such liability was intended to be fixed against the insurance companies. As we have already stated, we think this contention is true as to those policies of insurance which are payable in lump sums to designated beneficiaries. However, as we have already stated, where*977 the decedent directs that the insurance company shall retain the proceeds of the insurance policies and pay them to the beneficiaries in deferred payments such as we have in the instant proceedings, we think the word transferee as used in section 315(b) is broad enough to cover that situation and that the insurance companies should be held liable for the tax, limited of course to the extent provided in section 315(b).
Petitioners strongly argue that Congress could not have intended to hold the insurance companies liable as transferees under section 315(b) because they would be in no way interested in arriving at the correct amount of the estate tax and that the real parties at interest, to wit, the beneficiaries of the policies, might never have the opportunity to litigate the amount of the deficiency.
In a case like the present, where the Commissioner is seeking to hold the insurance companies as transferees under the provisions of section 315(b) and 316, if the beneficiaries should believe that the deficiency has been erroneously determined perhaps they would have the right to intervene in the proceedings before the Board. Cf. *978 Estate of Caroline W. Frame,18 B.T.A. 300">18 B.T.A. 300. That question we do not now decide, because we have no petitions for intervention pending before us. But, whether they would have the right to intervene *821 or not, if Congress had provided in section 315(b) that under such circumstances as we have in the instant case that petitioners are personally liable for the tax to the extent provided in that section, then the Commissioner has the right to use the remedy provided in that section and section 316, and it is our duty to sustain him. For the reasons already stated, we think the Commissioner should be sustained on this point.
Having held that petitioners are liable at law as transferees by reason of the provisions of section 315(b), it becomes unnecessary to determine whether petitioners are liable as trustees. The respondent apparently, by confining his argument to the proposition that petitioners are liable as transferees, has abandoned his determination that petitioners are also liable as trustees under section 315(b). It seems appropriate to add, however, that under such circumstances as we have in the instant case the insurance companies are apparently*979 not trustees for the beneficiaries of the policies.
In Crossman Co. v. Rauch,263 N.Y. 264">263 N.Y. 264; 188 N.E. 748">188 N.E. 748 (1934), the highest court of the State of New York held:
The obligation of the insurance company constitutes a debt from the company to appellant, the beneficiary, under the policy. Although the word "trust" is used, the agreement is not in fact a trust agreement. The monthly payments which the company contracted to pay are definitely fixed in amount. They are not income on personal property. They constitute deferred payments which the company agreed to make to the beneficiary in consideration of the receipt at the death of insured of $50,000, the face value of the policy. The agreement provides: "The proceeds received by the company under this agreement shall be invested with its general corporate funds as a part thereof in securities in which such corporate funds may be invested." Richard on the Law of Insurance (4th Ed.), § 385, p. 684; Uhlman v. New York Life Insurance Co.,109 N.Y. 421">109 N.Y. 421, 17 N.E. 363">17 N.E. 363.
See also *980 Phoenix Mutual Life Insurance Co. v. Bailey,80 U.S. 616">80 U.S. 616; Pierowich v. Metropolitan Life Insurance Co.,282 Mich. 118">282 Mich. 118; 275 N.W. 789">275 N.W. 789; Penn Mutual Life Insurance Co. v. Commissioner, 92 Fed.(2d) 962; Griswold on Spendthrift Trusts, 1936 ed., sec. 112.
Reviewed by the Board.
Decision will be entered under Rule 50.
KERN dissents.
DISNEY, dissenting: I can not agree with the conclusion of the majority. Section 315(b), relied upon to establish a status of transferees for the petitioners, refers in terms to a transfer by the decedent. The decedent merely paid premiums upon life insurance policies in connection with which he contracted for payment in a certain way. He did not transfer to the companies the amounts payable by them after his death, except in so far as he paid premiums, no doubt in *822 much less amount. He had the contractual right to arrange payment under the contract either in lump sum or in periodic payments. The only contract he had made at time of death was to provide for periodic payments and it seems to me the fact that he could have provided otherwise*981 is immaterial. At the time of death he held a contract with each of the petitioners, providing for payment in a certain way. I think, therefore, that the status of each of the petitioners is that of contractor only. The majority opinion seems to state that, if the insurance had been payable in lump sums to designated beneficiaries, the insurance companies, during the interim between the death of the insured and such payment, would not have been transferees. The distinction then is between a policy providing for payment in lump sum, and one providing for payment in periodic installments. That, however, is a mere detail as to the manner of discharge of a contract fixed by the terms thereof and if the insurance company is not a transferee after the death of the insured and before it complies with its contract and pays the money in a lump sum, I am unable to see why it is a transferee if, instead, it discharges its contract by a series of payments. In its origin, the word "transfer" denotes "to carry across," that is, to carry from one person or place to another. I am unable to think that there is such a transfer in the mere retention of moneys by the insurance company until payment*982 thereof in accordance with its contract. Many insurance policies provide that, in case of total permanent disability of the insured, he shall, without further payment of premiums, receive fixed monthly payments, in a manner analogous to that of the payment of the beneficiaries in installments under the contract herein involved. I am unable to believe that the totally and permanently disabled insured in the supposed case receives payment from a transferee. He merely receives it under the terms of the contract from the other party to the contract. Logic forbids, I think, that the insurance company be considered to have assumed a status other than that of a contracting party, merely because of a contingency covered by the contract, to wit, the contingency of total permanent disability of the insured. The supposed situation is wholly analogous, in my opinion, to that arising upon the death of the insured. Death, like total permanent disability, merely gives a right to payment under the contract. I can find no metamorphosis of a party to the contract into a transferee. There may be administrative difficulties in the view here taken, but to hold otherwise would, I think, be to add*983 to the statute.
SMITH agrees with this dissent.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: The Northwestern Mutual Life Insurance Company; Connecticut General Life Insurance Company; State Mutual Life Assurance Company; and Equitable Life Insurance Company of Iowa. ↩
2. SEC. 315(b). If (1) except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in possession or enjoyment at or after his death, or makes a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (A) the possession or enjoyment of, or the right to the income from, the property, or (B) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom, or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth.
SEC. 316. (a) The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment afternotice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):
(1) The liability, at law or in equity, of a transferee of property of a decedent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed by this title or by any prior estate tax Act or by any gift tax Act.
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Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax.
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(e) As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee. ↩