delivered the opinion of the court:
In each of these suits plantiffs seek to recover an overpayment of income taxes for the years 1945, 1946 and 1947. They involve common issues and were consolidated for trial. For convenience we shall refer to the plaintiffs as Washington, District and Lawyers. All three were incorporated in the District of Columbia, and during the years in question District did business in the District of Columbia, Maryland and Virginia while Washington and Lawyers were authorized only to do business in the District of Columbia and Maryland.
Plaintiffs’ business consisted of the insuring or certifying of titles to real estate and the transacting of business related thereto, with the greater portion of their income being derived from the issuance of Certificates of Title, hereinafter referred to as certificates, and Owner’s Policies, hereinafter referred to as policies, which were issued to purchasers of real estate. In general, the former protected only against defects in record title while the latter protected against all defects whether of record or not.
*167On March 17, 1922, in order to eliminate duplication of title plants and records, plaintiffs entered into a working agreement whereby they would issue joint certificates or policies on the titles examined, and share net profits and losses therefrom on a percentage basis of 40 percent each to District and Lawyers, and 20 percent to Washington. After this agreement was executed none of the plaintiff companies issued ■ separate certificates or policies, except in Virginia where separate ones were issued by District. Following an agreement among plaintiffs dated March 17, 1942, effective as of October 1,1936, as to contracts written prior to March 17,1942, Lawyers and Washington became jointly and severally liable with District on all certificates and policies issued by District respecting property situated in Virginia. This agreement provided a similar sharing of profits as before but effective as of January 1, 1942, on Virginia business.
Pursuant to Virginia and Maryland statutes, each of the plaintiffs had established during the years in question reserve accounts. The amount in these accounts was derived by setting aside 10 percent of the premiums received on Virginia certificates and policies and 8 percent on Maryland policies.1 These amounts were allotted to each of the companies on the basis of the percentages set forth in the 1922 agreement. In their separate income tax returns for the years in question, plaintiffs took and were allowed as deductions in computing taxable net income the amounts each carried in the reserve accounts (finding 9).
In 1947, the Maryland Insurance Department and the Virginia Bureau of Insurance conducted a joint examination of the affairs and financial condition of each of the plaintiffs. In their report the insurance examiners recommended the establishment of statutory reserves beginning with the year 1927, and based on revenue from all three jurisdictions. They agreed that the 10 percent reserve provided by the Virginia statute, since it was higher than that of the Maryland law, was adequate and should be used as the proper measure for the three companies.
*168The applicable Virginia statute, section 4325a, subsection (e),2 of the Virginia Code (1942), reads as follows:
On any contract of title insurance, hereafter issued by a domestic title insurance company, there shall be reserved initially a sum equal to ten per centum of the original premium, whether or not the risk shall be for a fixed time. If for a fixed time, then at the end of each year for the first five years, there shall be a reduction in the sum reserved of one per centum of the original premium, and thereafter at the end of each year of the remainder of said time a reduction of a pro rata portion of the remaining five per centum thereof, except that if the risk is of a mortgagee, trustee in a deed of trust to secure debt, or creditor secured thereby, no reduction shall be made that will decrease the sum reserved below five per centum of the original premium, until the expiration of the time of the risk. If not for a fixed time, then a risk shall be deemed to have been written, if of an owner of property, or any interest therein, for twenty years from the date of the contract, and if of a mortgagee, trustees in a deed of trust to secure debt, or creditor secured thereby, for a time expiring three years after the final maturity of the debt as stated in the mortgage or deed of trust, or for twenty years from the date of the contract, whichever time shall be longer. On any contract of title insurance heretofore issued, a reserve shall be set up and hereafter maintained, in such sum as would have been required if the above requirements had existed at and after the date of the contract. Said sums, herein required to be reserved for unearned premiums on contracts of title insurance shall at all times and for all purposes be considered and constitute unearned portions of the original premiums. In calculating reserves, contracts of title insurance shall be assumed to be dated in the middle of the year in which they were issued.
The recomputed reserves were set up on plaintiffs’ books at the year ending December 31, 1948. They were based on the amounts received by plaintiffs as premium income from 1927 through 1947, less allowances for returns to income as *169provided in the Virginia statute (finding 13). After making this recomputation, each of the plaintiffs filed a timely claim for refund of income taxes alleged to have beemoverpaid for the years 1945, 1946, and 1947 (finding 20). Each of these claims was denied by the Commissioner of Internal Revenue and these suits resulted. The additional deductions claimed and the amount of tax refunds sought are set forth in finding 21.
The question presented is whether these reserves set up pursuant to the Virginia statute and constitution constitute allowable deductions or exclusions from income for the years in question under section 204 of the Internal Revenue Code of 1939, 53 Stat. 72, 26 U. S. C. 204. The pertinent portions of that statute are as follows:
§ 204. Insurance companies other than life or mutual — ■ (a) Imposition of tax — (1) In general. There shall be levied, collected, and paid for each taxable year upon the normal-tax net income and upon the corporation surtax net income of every insurance company (other than a life or mutual insurance company) and every mutual marine insurance company and every mutual fire insurance company exclusively issuing either perpetual policies, or policies for which the sole premium charged is a single deposit which (except for such deduction of underwriting costs as may be provided) is refundable upon cancellation or expiration of the policy taxes at the rates specified in section 13 or section 14 (b) and in section 15 (b).
(b) Definition of income, etc.
In the case of an insurance company subject to the tax imposed by this section — * * *
(5) Premiums earned.
“Premiums earned on insurance contracts during the taxable year” means an amount computed as follows:
From the amount of gross premiums written on insurance contracts during the taxable year, deduct return premiums and premiums paid for reinsurance. To the result so obtained add unearned premiums on outstanding business at the end of the preceding taxable year and deduct unearned premiums on outstanding business at the end of the taxable year. For the purposes of this subsection, unearned premiums shall include life insurance reserves, as defined in section 201 (c) (2), pertaining to the life, burial, or funeral insurance, or annuity business of an insurance company subject to the tax im*170posed by this section and not qualifying as a life insurance company under section 201 (b); * * *.
Plaintiffs’ position is (1) that botb the certificates and policies are contracts of insurance and since the greater portion of their income was derived from their issuance, they qualify as insurance companies and are taxable as such under section 204; (2) that the reserves established pursuant to the Virginia and Maryland statutes are proper deductions within the meaning of that section; and (3) that, in any event, they are entitled to recover that part of the overpayment of taxes upon that part of their income attributable to the Maryland certificates by reason of their failure to so claim it along with the Virginia certificates in their returns for the years in issue.
Defendant contends that plaintiffs are not insurance companies within the meaning of section 204 and therefore not entitled to the deduction or exclusion which it provides. Even if found to so qualify, defendant would still deny recovery on the grounds (1) that when they received the premiums during the years in question, they received them under claim of right to do with as they saw fit, and the premiums are therefore includible in full, except for the reserves which in fact were established and allowed as deductions; (2) that the reserves which were established do not qualify as unearned premiums within the meaning of section 204; and (3) that plaintiffs in making an approximation as to the amount of the deductions claimed have failed to sustain their burden of proof which requires a showing not only of the legality of the deductions but their amount. Defendant also raises a constitutional question as to the application of the Virginia and Maryland statutes and contests any recovery based on the Maryland statute because of plaintiffs’ failure to base any claim on that statute in their claims for refund filed with the Commissioner of Internal Revenue.
Defendant’s initial defense is that plaintiffs are not classifiable as insurance companies, and therefore not entitled to the benefits of the above tax statute. While the basis for this contention is twofold, it stems from the distinction which exists between the language employed in the certificates and *171that which, appears in the policies. The former, after reciting a consideration, states as follows:
[We] Do Hereby Certify that at the date hereof, according to the records, the title to the real estate situate in * * *. [Italics supplied.]
The latter, whose status as insurance contracts the defendant does not seriously question, reads:
[We], subject to the conditions hereinafter set forth, do hereby guarantee that they will pay to * * *. [Italics supplied.]
Defendant urges that the certificates with their use of the word “certify” are not contracts of insurance but merely opinions by the companies that title to a particular piece of property is as stated in so far as record title is concerned. Since for the years in question the revenue from the certificates constituted the greater portion of plaintiffs’ income, defendant asserts that it cannot be found that plaintiffs were in fact engaged in the insurance business.3
This precise issue was before the Tax Court in Columbia Title Ins. Co. v. Commissioner, 3 T. C. 1099, and the Court of Appeals for the District of Columbia, in Real Estate Title Ins. Co. v. District of Columbia, 161 F. 2d 887, where the wording of the certificates of title was substantially the same as that now before us. The Tax Court emphasizing the word “certify” held the certificates not to be contracts of insurance. The Court of Appeals however held to the contrary. There, the court, at page 889, in refusing to decide the question on the narrow grounds of the choice of a word stated:
We are of opinion the word [certify] must be read in its general significance and in harmony with the contract with which it is used; here it can mean nothing less than guaranty or warranty. * * *
In the cases at hand the record abundantly shows that for more than half a century the general understanding of petitioners, the bar, and the public has been that each of the policies issued by petitioners creates a limited liability payable to the holder upon the breach of its conditions. It is not their work as title examiners that *172petitioners insure. What they do certify is that the title to the property involved is good amd marhetdble and their liability is conditioned upon the breach of this certification. This by every token is insurance and nothing else. It would be a shock to the thousands of present policyholders of these companies to be told that all of this is untrue and that petitioners’ liability is limited to a showing of negligence in the examination of the land records of the District. * * * [Italics supplied.]
We believe the broader reasoning of the Court of Appeals to be correct, and as applied here leads to the conclusion that the certificates are contracts of insurance as that term is generally understood. This being so, it must likewise be held that plaintiffs were engaged in the insurance business during the years in question and therefore entitled to the benefits of section 204 if the reserves set aside otherwise qualify. United States v. Home Title Co., 285 U. S. 191.
Nor do we believe that the claim of right doctrine has application here. That doctrine has application to those situations where the taxpayer receives what purports to be income during a particular year but seeks to exclude it from income for tax purposes on the ground that events of a later year may operate to deprive the taxpayer of it. North American Oil v. Burnet, 286 U. S. 417. It differs from the cases here where the taxpayers overlooked a bona fide deduction only to discover its presence at a later date and then seek within the statutory period to claim the deduction and recover the overpaid taxes.
Defendant raises the further question as to whether the type of reserve contemplated by the Maryland and Virginia statutes is the type for which section 204 allows an exclusion or deduction. Defendant contends that premiums paid for title insurance are earned when received and that the reserves in question set aside under the state statutes constitute merely solvency reserves rather than unearned premium reserves. This issue is also not new before the courts. The test that has been evolved is one of looking first to the state statute to determine whether it calls for the placing of funds in reserve for an indefinite period or whether the required reserve is a segregation of a portion of the premium income for a specified period when the risk is presumably greatest with *173its eventual release in later years. The former is looked upon as a mere solvency reserve outside section 204, while the latter is held to be a reserve within the meaning of that section. City Title Ins. Co. v. Commissioner, 152 F. 2d 859; Houston Title Guaranty Co. v. Commissioner, 22 T. C. 989; Title & Trust Co. v. Commissioner, 15 T. C. 510, aff’d 192 F. 2d 934; Home Title Guaranty Co. v. Commissioner, 15 T. C. 637; Early v. Lawyers Title Ins. Corporation, 132 F. 2d 42. See also I. T. 3798, 1946-1 Cum. Bull. 127.
This distinction we believe to be a valid one. It cannot be supposed that section 204 with its use of the term “unearned premiums” intended to exclude for all time the funds which it allows to be excluded in determining earned premiums. That section using the above term contemplates that at some future date the funds placed in the reserve will be deemed to have been earned at which time they will be released and subject to taxation. A solvency reserve provides for no such future release.
Here the Yirginia statute does provide for the eventual release of the reserve funds and in the Early case, supra, which involved the same Virginia statute, the reserve established in conformity with it was held to be one of unearned premiums and deductible under section 204. In speaking of the Virginia statute, the court, at page 45, stated:
* * * We agree that a statute of the state could not be given the effect of withdrawing from taxation under the Revenue Act what was in fact an earned premium by the mere device of calling it unearned; but the Virginia statute does more than this. It gives to the portions of the premiums which it requires to be placed in-the reserve all of the attributes that pertain to unearned' premiums, i. e. it withdraws them from the power of the-company to use them for its general purposes and impresses them with a trust in favor of contract holders-until the risk shall have been carried for the period that the statute prescribes. Until this period has expired, the company has no more control over them than, a life insurance company has over the unearned portion' of the premium paid for life insurance or than a fire-insurance company has over the portion of the premium applicable to an unexpired risk. Until then, the company cannot be truly said to have earned the portion of *174the premium which the law requires it to reserve and hold in trust during this crucial period of risk.
As pointed out above, plaintiffs’ reserves were not established out of any particular earnings of any particular year but their amount was computed on 10 percent of plaintiffs’ income from certificates and policies issued during the 1927-1947 period, including the three taxable years in dispute, and then assigned to each of the plaintiffs in conformity with the percentages contained in the 1922 agreement on a year to year breakdown. Thus, it is impossible to earmark or determine from the book entries, which were made at the close of 1948, what part of the reserves represented a portion of the actual premiums received in 1945,1946, and 1947. In furnishing this approximation rather than the actual amount permitted under the Virginia statute, defendant contends that plaintiffs have failed to prove their case.
The method adopted by plaintiffs in re-establishing their reserve accounts was a fair and reasonable one and was the one suggested by the insurance examiners whose sole purpose was to bring the total amount of those accounts into conformity with state requirements in so far as it was possible at that time. The relationship of those accounts as revised to the tax problem was apparently not considered at the time. While it is true, as defendant asserts, that the burden is on the taxpayer to prove the amount of any deduction claimed, we believe that plaintiffs have met that burden here. From the figures set forth in findings 6 and 21 it is quite apparent that the deductions now claimed are less than what plaintiffs would have been entitled to if they had applied the percentage found in the Virginia statute to their income received on certificates and policies issued during the years in question. They, of course, could make no claim for any greater amount than what they did in fact establish in the reserve accounts. Since the amounts now claimed were in fact established in the reserve accounts and are less than what the full percentage of the Virginia statute would allow, we find no objection to the acceptance of plaintiffs’ figures.
Defendant also challenges plaintiffs’ right to recover on the ground that since the Virginia statute as applied here *175reaches revenue collected outside that state, it is in conflict with the Federal Constitution which, defendant asserts, prohibits a state from taxing receipts beyond its jurisdiction or control. First, of course, it should be noted that the statute with which we are concerned is not a taxing statute. It is, however, true that the reserves established included a percentage of income derived outside either Maryland or Virginia and were required of companies not doing business in Virginia. However, in the face of the operating agreement among the plaintiffs, and the belief of the insurance departments that the policy and certificate holders of those states would not be protected to the extent that their laws required unless the reserves were established as recommended, we find the requirement neither unreasonable nor in violation of the Constitution. It cannot be found that Maryland and Virginia have no definable interest in the contracts issued by the plaintiffs, or that the statute in question seeks to regulate matters which are totally unconnected to any local interest. Osborn v. Ozlin, 310 U. S. 53; Watson v. Employers Liability Corp., 348 U. S. 66.
In view of the foregoing we need not discuss the application of the Maryland statute.
Plaintiffs are entitled to recover and judgment is entered for them in the following amounts, together with interest on each amount as provided by law:
Tear Amount
1945 The District Title Insurance Co_§11,645.23
“ The Lawyers Title Insurance Co_ 12,539.91
“ The Washington Title Insurance Co_ 6,269.96
1946 The District Title Insurance Co_ 7,879. 58
“ The Lawyers Title Insurance Co_ 7, 879. 58
“ The Washington Title Insurance Co_ 3,938. 79
1947 The District Title Insurance Co_ 6,406.00
“ The Lawyers Title Insurance Co_ 6,406.00
“ The Washington Title Insurance Co_ 3,203.00
It is so ordered.
Laeamoee, Judge; Madden, Judge; Whitaker, Judge; and JoNEs, Chief Judge, concur.*176FINDINGS OF FACT
The court, having considered the evidence, the briefs and argument of counsel, and the report of Commissioner C. Murray Bernhardt, makes the following findings of fact:
1. Plaintiffs, The Washington Title Insurance Company, The District Title Insurance Company, and The Lawyers Title Insurance Company (hereafter referred to as Washington, District and Lawyers, respectively), are corporations organized and existing under the laws of the District of Columbia. They were organized on February 27,1891, May 2,1892, and July 7,1896, respectively, and each has been engaged in business since its organization. Their charters authorized each company to insure titles to real estate and transact business related or incidental thereto.
2. During the years 1945, 1946, and 1947, District was authorized to do business in the District of Columbia, Maryland, and Virginia. Washington and Lawyers were not permitted to qualify in Virginia, but they were authorized to do business in the District of Columbia and Maryland.
3. a. On March 17, 1922, plaintiffs, in order to eliminate duplication of title plants and records, entered into a working agreement effective July 1,1922, under which they have continued to operate, whereby they would issue joint certificates 4 on titles examined, and share net profits and losses therefrom on a percentage basis (40% each to District and Lawyers, and 20% to Washington). In the same proportions the agreement provided that plaintiffs would acquire as tenants in common an office building for the conduct of the joint business. After providing for disposition of joint records, indexes and finished cases upon withdrawal of any of the participating companies, the agreement provided:
7. The ownership of the present records, plant, indexes and finished cases of the three Companies shall not be affected by this Agreement but the same shall be placed at the disposal of the joint Companies for use in the business so long as this Agreement continues in effect.
*177b. After the 1922 agreement was entered into none of plaintiff companies issued separate title certificates or policies, except in Virginia where separate ones were issued by District to its Virginia customers in respect to titles examined of property there situated. Following an agreement among plaintiff companies dated March 17, 1942, effective as of October 1, 1936, as to contracts written prior to the date of the instrument, Lawyers and Washington became jointly and severally liable with District on all title certificates and policies issued by District respecting property situated in Virginia. The agreement provided a similar sharing of profits as before but effective as of January 1, 1942, on Virginia business.
4. During 1945,1946, and 1947, plaintiffs issued three forms of contracts in respect to real estate titles examined by them, to wit:
a. Certificate of Title (herein referred to as “certificate”), which, after reciting a consideration, provided:
[We] Do Hereby Certify that at the date hereof, according to the records, the title to the real estate situate in [location and description of property] is as shown in the opinion on the reverse side hereof signed by -Vice-President and Title Officer, and is not, at the date hereof, charged or affected by any existing lien or encumbrance or by any civil action or proceedings pending in said District in which said real estate is described, except such as are noted or mentioned in said opinion, and except unpaid taxes and assessments, if any, as to which a Certificate of Taxes from the District of Columbia will certify, and except, also, building and zoning regulations which are not covered by this certificate. This Certificate is issued to -and for-benefit only.
Issuance of certificates was discontinued by plaintiffs as of December 31, 1947, and replaced shortly before January 1, 1948, by a form designated as “Title Insurance Policy Eecord Title.”
b. Owner’s Policy (herein referred to as “policy”) which, after reciting a consideration, provided:
* * * The District Title Insurance Company, The Lawyers Title Insurance Company and The Washington Title Insurance Company, subject to the conditions here*178inafter set forth, do hereby guarantee that they will pay to_executors, administrators, heirs, or devisees, any and all loss or damage, not exceeding in the aggregate the amount of this policy, which the insured shall' sustain by reason of any defect in the title of the insured in and to the real estate described under Schedule “A” hereof, or by reason of liens or encumbrances against the same as of the date hereof, excepting however, the defects, estates, interests, objections, liens or encumbrances mentioned in Schedule “B” hereof.
The total liability of these companies under this policy is limited to_Dollars.
In general, certificates protected the beneficiary only against defects in the record title, while policies guaranteed against all defects in title, whether or not of record, with exceptions specifically enumerated in each separate policy. The principal defects in title for which a certificate would not afford protection but which would be insured under a policy were the following:
Forged wills, deeds, and other conveyances.
False personation of the true owner of the land.
Conveyances altered after execution and before recording.
Instruments executed under fabricated or expired power of attorney.
Deeds delivered after death of grantor, or without consent of grantor.
Deeds and other legal documents executed by corporations without proper authority or after forfeiture of charter.
Deeds by persons of unsound mind.
Deeds by minors.
Deeds by persons represented to be single, but secretly married.
Fraud, duress, or coercion in securing essential signatures to legal documents.
Unauthorized delivery of instruments by agents.
Unauthorized or fraudulent acknowledgments.
Falsification of records.
Errors in recording or indexing legal documents.
Errors in indexing tax and assessment records.
Unrecorded tax sales.
*179Encroachments, unrecorded rights of way, or hidden easements not disclosed by survey and unknown by the insured.
Marriage and birth or adoption of children after date of will.
Undisclosed or missing heirs.
Invalid or undisclosed wills.
Liens for unpaid estate or inheritance taxes.
Destruction of evidence of title records which may later appear by the original conveyances.
Defective foreclosure of mortgages or deeds of trust.
c. Policy of Title Insurance (informally known as “mortgagee’s policy”), was a contract insuring the owner of the indebtedness secured by the mortgage or deed of trust described in Schedule A, and successors in interest, against loss or damage not exceeding the sum of money stated in the contract. The contract limited the companies’ liability for loss sustained by reason of any defect in the execution of the mortgage or deed of trust, but only insofar as such defect affected the lien or charge of such mortgage or deed of trust upon the land, etc., excepting such defects, liens, encumbrances, and other matters described in Schedule B therein which the companies did not insure. Where the term “policy” is used in this report it shall be deemed to include both owner’s policies and mortgagee’s policies.
d. Each of the aforesaid contracts extended protection to the beneficiary therein coextensive with the duration of his interest in the property.
5. The basis upon which the amount of title insurance or certificates is determined is the amount involved in the particular transaction. In the case of a policy it is the sale price of the property. In the case of the mortgagee’s policy it is the amount of the loan. Title insurance or certificates are never issued for any greater or lesser amount than the sale price or loan. The rate of premium varies with the amount involved and, in a few isolated instances, with the degree of risk assumed.
6. Included in the gross revenues received by plaintiffs in the years 1945, 1946, and 1947 were amounts received in *180payment for certificates and policies issued. The following table, which presents plaintiffs’ gross revenues for each of the three years not only from their title insurance business but also from miscellaneous investments unrelated to the title insurance business, shows the proportions of such gross revenues attributable to issuance of certificates, issuance of policies, and a combination of both:
7.The following table presents the same information as the table in Finding 6, except that in each case plaintiffs’ gross revenues for each year are reduced by that portion attributable to revenues from sources other than the title-insurance business, thus producing variations in the percentages:
8. The evidence does not establish that plaintiffs filed with the Commissioner of Internal Revenue copies of their annual reports or statements to the Insurance Departments of' the Commonwealth of Virginia and the State of Maryland, for the calendar years 1945,1946, and 1947.
9. Plaintiffs deducted the following amounts from their income from policies in their 1945,1946, and 1947 Federal income tax returns as “additions to reserve for unearned insurance premiums.”
*181
RECAPITULATION OF DEDUCTIONS
In accordance with, their agreement of March 17, 1922, plaintiffs allocated the above totals to each company as follows:
In their separate income tax returns for each of the calendar years involved herein, plaintiffs took and were allowed as deductions in computing taxable net income, the amounts allocated to them, as shown in the above tabulation.
10. Plaintiffs’ gross receipts in 1945, 1946, and 1947 from certificates issued by them in Maryland were, respectively, $57,447.75, $82,882.60, and $131,254. In the Federal income tax returns for those years plaintiffs made no deduction from their income from such certificates for reserves thereon computed at 8 percent. The deduction which was taken and allowed at that percent was on the policies only.
11. In 1947 the Maryland Insurance Department and the Virginia Bureau of Insurance, at the request of the former, conducted a joint examination of the affairs and financial condition of each of the plaintiffs. At the completion of the examination separate written reports were made of each *182of the companies, dated December 19, 1947, and filed with the respective state authorities, a copy of each report being-delivered to the company to which it related. The examination involved verification of assets, establishment of liabilities and a test check of every transaction of the companies,, but it made no distinction between receipts from certificates and those from policies. Nor was any investigation made as to what portion of the premium income was attributable to' title business transacted solely in Maryland and/or Virginia..
12. In their report of the examination of each company, the insurance examiners recommended the establishment of statutory reserves computed according to section 4325a, subsection (e) of the Code of Virginia (1942), beginning with the year 1927, and based on revenue from all the certificates and policies written by plaintiffs in Maryland, Virginia, and the District of Columbia. They agreed that the 10 percent reserve provided by the Virginia statute, since it was higher than that required by the Maryland law, was adequate and should be used as the proper reserve for the three companies. They recommended that plaintiffs establish an unearned premium reserve in the amount of $328,565.805 as of June 1947, and allocated this sum among plaintiffs on the basis of the 1942 agreement.
13. The reserves required by the Maryland and Virginia insurance departments were set up on plaintiffs’ books at the year ending December 31,1948. In computing the required reserves the insurance examiners based the amounts on the plaintiffs’ premium income from 1927 through 1947, less allowances for returns of certain reserves to income after the premiums on the contracts relating to them were actually earned, all in accordance with the formula prescribed in the Virginia law. The formula provided that one-tenth of the 10 percent reserve on fees or premiums on policies and certificates was to be returned to income each year for 5 years, and that the return to income of the remaining 5 percent was to be prorated over the remaining 15 years of each particular contract.6
*18314. The reserve itself was considered by the insurance examiners under the requirements of the state laws to be an unearned premium reserve representing.a-percentage of that part of the premium which, at any given time prior to the expiration of the contracts, was not yet fully earned by plaintiffs. They termed it colloquially a policy reserve. It was not a funded reserve in that the funds were not earmarked or deposited in a separate bank account, nor were they deposited with a trustee. Plaintiffs carried the reserve on their books under “liabilities” with a subheading of “statutory reserve.” It was allocated on plaintiff’s books as a liability before determination of earned surplus. It was not the kind of a liability to be returned to the policyholder as in the case of fire or casualty insurance, but a fund to be held in diminishing amounts until the expiration of the contract in each case. Virginia did not impose any restrictions on the companies respecting the investment of the reserve, which could be invested in defense bonds, real estate, and like investments.
15. In setting up the reserve for unearned premiums on plaintiffs’ books of account at December 31, 1948, the books were closed for December 31, 1947. The correcting entries were charged to earned surplus and the existing voluntary reserve for contingent title insurance losses. This was done in order to avoid distorting the companies’ income during the taxable years 1945-1947, and to take out of the earned surplus account moneys which did not belong there and to credit them to an account required by the insurance examiners. The reserve was not set up out of any particular earnings of any particular year, but the amount was computed on 10 percent of gross income from certificates and policies issued during the period 1927-1947, including the three taxable years in dispute. It was not possible to earmark or determine from the correcting entries made what part of the reserve represented premiums received by the companies in 1945,1946. and 1947.
*18416. While neither the Virginia Bureau of Insurance nor the Maryland Commissioner of Insurance issues any directives or orders to title insurance companies within its respective jurisdiction with respect to the setting up of reserves for unearned premiums, by custom and usage the report of the insurance examiners is considered to be a directive, noncompliance with which might lead to revocation of license or denial of renewal of license. Reserve requirements are fixed by statute in each jurisdiction.
17. Plaintiffs paid their Federal income and excess profits taxes for the taxable years involved herein on the dates and in the amounts shown below, to wit:
*185
18. In accordance with the agreement of March 17, 1922, each plaintiff reported in its Federal income tax returns for the calendar years 1945, 1946, and 1947, its proportionate share of the net income of the Virginia title office of District for each of said years, and its proportionate share of the combined net income of the three companies for each of said years, which was allocated to them.
There was reflected in the net income of the Virginia title office, as computed by plaintiffs for each of said years, title losses attributable to that office in the amounts stated below, to wit:
There was reflected in the combined net income of the three companies, as computed by them for each of said years, title losses, in addition to those allocated to the Virginia title office, in the amounts stated below, to wit:
The Commissioner of Internal Kevenue did not make any adjustments of plaintiffs’ taxable net income as so reported in their income tax returns.
*18619. In its balance sheets for the calendar years 1944,1945, 1946, and 1947, District reported as at December 31st of each of said years, the following amounts in its reserve for title insurance losses:
The balance sheets annexed to the income tax returns of Lawyers and Washington for the taxable years involved herein do not show separately the amounts in their reserve for title insurance losses.
In a statement showing their “Equity in the Assets of the Joint Companies,” annexed to their income tax returns, plaintiffs reported that they maintained a reserve for title insurance losses for the years and in the amounts shown below, to wit:
20. After establishing the unearned premium reserves required by the insurance departments of Maryland and Virginia, each of the plaintiffs filed a timely claim for refund of income taxes allegedly overpaid by it for the taxable years 1945, 1946, and 1947. Each claim for refund contained the following statement varied only by reference to the different year to which it related:
Section (e) of Chapter 79 of the Acts of the General Assembly of Virginia of 1936, P. 102 requires that domestic title insurance companies reserve as unearned premiums ten per centum of the original premium received on any contract of title insurance issued. In Early v. Lawyers Title Insurance Company (132 F (2d) 42) the court held that such unearned premiums were not income in the year in which the related policies were issued.
The Commonwealth of Virginia has required the taxpayer to reserve such unearned premiums on all policies issued by the taxpayer. The Commonwealth has also set forth the method by which the taxpayer each year *187shall determine the earned portion of such previously unearned premiums. In connection therewith the Commonwealth also required the taxpayer to adjust the balance in the reserve for unearned premiums as at December 31, 1947 to the amount that would have been in the reserve account if the reserve had been computed by the method as now required by the Commonwealth of Virginia.
As a consequence of the action of the Commonwealth of Virginia the amount of unearned premiums to be excluded from income (shown in the tax return as a deduction for “reserve for contingent losses on title insurance”) is substantially increased over the amount claimed in the return and such increase is now claimed as a reduction of taxable net income for the calendar year ended December 31,1945.
21. The following schedule shows the additional deductions claimed by each of the three companies in its refund claim for each of the taxable years 1945, 1946, and 1947, resulting from its failure to deduct certain reserves in its returns, and the amounts of tax refunds claimed as a result of such failure:
Each claim was disallowed.
22. Plaintiffs kept their books of account and made their Federal income tax returns on the calendar year and accrual basis of accounting.
CONCLUSION OE LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiffs are entitled to recover and it is therefore adjudged and ordered that' plaintiffs recover of *188and from the United States the following amounts, together with interest on each amount as provided by law:
For the year 1945The District Title Insurance Company,. eleven thousand six hundred forty-five dollars and twenty-three cents ($11,645.23); The Lawyers Title Insurance Company., twelve thousand five hundred thirty-nine dollars and ninety-one cents ($12,539.91); The "Washington Title Insurance Company, six thousand two hundred sixty-nine dollars and ninety-six cents ($6,269.96).
For the year 1946: The District Title Insurance Company, seven thousand eight hundred seventy-nine dollars and fifty-eight cents ($7,879.58); The Laioyers Title Insurance Company, seven thousand eight hundred seventy-nine dollars and fifty-eight cents ($7,879.58); The Washington Title Insurance Company, three thousand nine hundred thirty-eight dollars and seventy-nine cents ($3,938.79); and
For the year 1947: The District Title Insurance Company,. six thousand four hundred and six dollars ($6,406); The Lawyers Title Insurance Company, six thousand four hundred and six dolars ($6,406); The Washington Title Insurance Company, three thousand two hundred and three dollars ($3,203).
The record is silent as to why the Maryland certificates were excluded in computing the reserve accounts.
While this section mentions only domestic companies, Its sanctions are apparently made applicable to foreign companies pursuant to section 163 of the Constitution of Virginia which provides as follows: “No foreign corporations shall be authorized to carry on, in this State, the business, * * * or be relieved from compliance with any of the requirements made of similar domestic corporations by the Constitution and laws of this State, where the same can be made applicable to such foreign corporations without discriminating against It.”
Por the percentages of plaintiffs’ revenue attributable to certificates and policies see findings 6 and 7.
It is reasonable to conclude that use of the term “certificates” in this early agreement embraced both certificates of title and title insurance policies, both of which all three companies issued in the course of operation under the agreement.
After adjustments permitted by state statutes.
Thus, in the case of certificates and policies the original fee or premium was spread oyer the 20-year life of the contracts. As to mortgagees’ policies, the premiums were spread over the period of the mortgage.