Circuit Judge.
This appeal involves income taxes of London Shoe Company, Inc., for the year *2311931. and the sum in controversy is $3,-115.44.
In 1934 that company insured the life of Marcus Weingarten, one of its principal officers, for $100,000. Under the terms of the policy the taxpayer was designated as the beneficiary, and a gross annual premium of $9,097 was required to be paid so long as Weingarten was alive unless the policy was to determine other than by reason of the death of the insured. Between 1924 and 1931, the taxpayer paid for premiums the aggregate sum of $63,679 and received as dividends $13,117, leaving $50,562 as the net amount expended for the insurance. The premiums were not deducted as an expense during any of the taxable years. The policy was surrendered and canceled in 1931 and the taxpayer received $24,600 as the cash surrender value of the policy. In its income tax return for that year it claimed a deductible loss of $25,962 based upon the difference between $50,562, the net cost of the insurance, and the cash surrender value of $24,600. In assessing the tax for the year 1931, the Commissioner rej ected • the deduction claimed. Upon an appeal by the taxpayer to the Board of Tax Appeals, the Board likewise disallowed the deduction and because of this determined a deficiency in taxes of $3,713.48.
A life insurance policy ordinarily combines investment with insurance protection. The decision in Lovell v. St. Louis Mutual Life Ins. Co., 111 U.S. 264, 274, 4 S.Ct. 390, 395, 28 L.Ed. 423, where the contract was terminated by the act of the company and the policyholder demanded a return of all premiums paid, with interest, less the amount of his premium note, illustrates this double feature. The court there said: “But we do not think that he is entitled to a return of the full amount of his premiums paid. •He had the benefit of insurance upon his life for five years, and the value of that insurance should be deducted from the aggregate amount of his payments. In other words, the amount to which the complainant is entitled is what is called and known in the life insurance business as the value of his policy at the time it was surrendered, with interest, less the amount of his premium note, which should be surrendered and canceled.”
In the earlier years of a policy, the annual life premium is in excess of the amount required to pay the current cost of insurance protection and such excess is retained by the insurance company as a reserve and increased at compound interest at an agreed rate for the purpose of making good the deficiency in later years when the annual premium is no longer, sufficient to pay for the actual cost of insurance. The fund accumulated out of the excess premiums is known as the “reserve” on the policy and represents the investment portion of the premium payments held for the benefit of the policyholder. In case the policy is surrendered or allowed to lapse, the holder may receive the reserve held for his benefit known as the “cash surrender value,” which represents the equity of the insured in the policy above the amounts paid for protection. The nature of a “surrender value” was described by the Florida District Court in Re Morgan, 282 F. 650, substantially as above. In order to determine whether there was any loss in the present case, the taxpayer would have to show what portion of the premiums was attributable to- investments and whether the cash surrender value was less than such portion. It may be assumed, in the absence of any proof to the contrary, that the cash surrender corresponds with the amount of the reserve; that is to say, with the excess of premiums over what was required for protection.
It is argued that in Lucas v. Alexander, 279 U.S. 573, 49 S.Ct. 426, 73 L.Ed. 851, 61 A.L.R. 906, the Supreme Court applied another rule and held where, upon the surrender of the policies, the amount received was in excess of the premiums paid, the difference was taxable gain within the provisions of section 202 of the Revenue Act of 1918 (40 Stat. 1060), which provided:
“(a) That for the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition of property * * * the basis shall be—
“(1) In the case of property acquired before March 1, 1913, the fair market price or value of such property as of that date.”
In other words, it is said that the difference between the amount received as a surrender value and the premiums paid is the measure of the tax “against the profits and income derived from any source whatever.” We think, however, *232that such was not the effect of the decision. It is true that Justice Stone at one place in his opinion (279 U.S. 573, at page 576, 49 S.Ct. 426, 427, 73 L.Ed. 851, 61 A.L.R. 906) said: “By the expenditure of $78,100 in premiums, the insured secured a return of $120,797, resulting in an economic and realized money gain to him of $42,697.” But he neither said, nor did the court hold, that the difference was a taxable gain. In that case the policies were taken out in 1899, the premiums had been fully paid •in 1908, and in 1919 the policyholder was given the option of receiving on each policy the sum of $50,000 plus the cash dividend then apportioned by the company. The question of the cost of the capital asset was not before the court, but only the fair market value as of March 1, 1913, and the gain realized after that date. It was held that the gain was the difference between the cash surrender value of the policy on March 1, 1913, plus dividends then collectible and the cash surrender value plus dividends received when the policy was surrendered. The court was not dealing with the cost of the policy but its value on March 1, 1913.
It was the failure to take into account the two factors of investment and insurance protection which are inherent in the ordinary life policy that explains the decision in Forbes Lithograph Mfg. Co. v. White (D.C.) 42 F.(2d) 287, with which, with all respect, we must differ. The precise question we have to determine was before the Circuit Court of Appeals of the Third Circuit in Century Wood Preserving Co. v. Commissioner of Internal Revenue, 69 F.(2d) 967. That court declined to follow Forbes Lithograph Mfg. Co. v. White, supra, and held that a corporate taxpayer was not entitled to deduct as a business loss the difference between the cash surrender value of a life insurance policy and the amount of premiums paid. The holding of the Third Circuit that cost is approximately reflected in the cash surrender value of a policy, and consequently that there could be no loss though the premiums exceeded the value, seems to us correct and applicable to the facts before us.
Section 22 (b) (2) of the Revenue Act of 1928 (26 U.S.C.A. § 22 note) exempts from taxable income: “Amounts received (other than amounts paid by reason of the death of the insured and interest payments on such amounts) under a life insurance, endowment, or annuity contract, but if such amounts (when added to amounts received before the taxable year under such contract) exceed the aggregate premiums or consideration paid (whether or not paid during the taxable year) then the excess shall be included in gross income.”
It is argued that, because the foregoing subdivision provides that gain shall be ascertained by taking the total amount paid in on one side from the total amount received upon the closing out of the transaction,. a similar rule ought to he applied where there is a loss. But there is no special statutory provision for computing deductible losses in cases where the premiums paid for a life insurance policy exceed the amount of the reserve or the cash surrender value. The subdivision dealing with the computation of taxable gains somewhat favors the taxpayer at the expense of the government, because it allows the deduction of the full amount of the premiums paid from the total amount received, though the premiums are in excess of 'what would normally be required for insurance protection, and thus lessens the amount of the taxable gain. It does not necessarily result that such statutory indulgence will be given the taxpayer in computing losses, especially where there is no statutory provision that contains- language that will justify it.
Section 113 (a) of the Act of 1928 (26 U.S.C.A. § 113 note) contains a general clause for computing loss which states the law applicable to the present situation. It provides that: “The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property.”
Here the cost of the proceeds which the taxpayer received upon the surrender of the policy seems to have been approximately the amount of excess premiums set apart from year to year as a reserve. Section 22 (b) (2), which is a specific statute dealing with gains has nothing to do with the mode of calculating the losses that may be deducted when the cash surrender value of a life insurance policy is paid. They are governed by the general provisions of section 23 (f, g), 26 U.S.C.A. § 23 (f, g) and note, and section 113 (a), 26 U.S.C.A. § *233113 note. Losses, if any, would be represented by the amount by which the premiums so far as they are paid toward the reserve exceed the cash surrender value of the policy.
We can see no escape from the conclusion reached by the Board that no loss was established in this case, for the reason that the cost was approximately reflected in the cash surrender value. The portion of the premiums not used to build up the reserve was paid to obtain the insurance protection which was for many years afforded. Century Wood Preserving Co. v. Commissioner of Internal Revenue (C.C.A.) 69 F.(2d) 967; Keystone Consolidated Publishing Co. v. Commissioner of Internal Revenue, 26 B.T.A. 1210; Appeal of Standard Brewing Co., 6 B.T.A. 980.
The order of the Board of Tax Appeals is affirmed.