Commissioner of Internal Revenue v. First Security Bank of Utah, N. A.

Summary

The Supreme Court considered whether the Commissioner of Internal Revenue could allocate a portion of reinsurance premium income earned by a controlled insurance subsidiary to affiliated national banks under Internal Revenue Code § 482. The Court held that the income could not be attributed to the banks because federal banking law prohibited them from receiving insurance-related commissions or premiums, and affirmed the decision of the Tenth Circuit. Justice Marshall dissented.

Holdings

1. Section 482 did not authorize allocating Security Life's premium income to the Banks because the Banks could not lawfully receive insurance commissions or premiums and therefore did not have the complete power contemplated by the § 482 regulations to receive or shift that income.
2. The Court did not decide the full circumstances under which originating or referring business may generate taxable income, but agreed that origination or referral does not necessarily result in taxable income to the originating party.

Questions Presented

1. Whether Internal Revenue Code § 482 authorized the Commissioner to allocate to the Banks insurance-premium income received by Security Life when the Banks could not lawfully receive that income.
2. Whether the Banks' referral and processing of credit insurance, without receipt of commissions or premiums, resulted in taxable income attributable to them under § 482.

Disposition

affirmed