sequent committee reports do not mention § 302 (g). Transcripts of committee hearings in 1918 and since are equally uninformative.*

Necessarily, then, the language and the apparent purpose of § 302 (g) are virtually the only bases for determining what Congress intended to bring within the scope of the phrase "receivable as insurance." In fact, in using the term "insurance" Congress has identified the characteristic that determines what transactions are entitled to the partial exemption of § 302 (g).

We think the fair import of subsection (g) is that the amounts must be received as the result of a transaction which involved an actual "insurance risk" at the time the transaction was executed. Historically and commonly insurance involves risk-shifting and risk-distributing. That life insurance is desirable from an economic and social standpoint as a device to shift and distribute risk of loss from premature death is unquestionable. That these elements of risk-shifting and risk-distributing are essential to a life insurance contract is agreed by courts and commentators. See for example: Ritter v. Mutual Life Ins. Co., 169 U. S. 139; In re Walsh, 19 F. Supp. 567; Guaranty Trust Co. v. Commissioner, 16 B. T. A. 314; Ackerman v. Commissioner, 15 B. T. A.. 635; Couch, Cyclopedia of Insurance, Vol. I, § 61; Vance, estate tax. Agents of insurance companies have openly urged persons of wealth to take out additional insurance payable to specific beneficiaries for the reason that such insurance would not be included in the gross estate. A liberal exemption of $40,000 has been included and it seems not unreasonable to require the inclusion of amounts in excess of this sum. Id., p. 22.

The same comment appears in Senate Report No. 617, 65th Cong., 3d Sess., p. 42.

4

The curious consistency and inadequacy of § 302 (g) have not escaped notice. See Paul, Life Insurance and The Federal Estate Tax, 52 Harv. L. Rev. 1037; Paul, Studies in Federal Taxation, 3d Series, p. 351; United States Trust Co. v. Sears, 29 F. Supp. 643, 650.

Opinion of the Court.

312 U.S.

Insurance, §§ 1-3; Cooley, Briefs on Insurance, 2d edition, Vol. I, p. 114; Huebner, Life Insurance, Ch. 1. Accordingly, it is logical to assume that when Congress used the words "receivable as insurance" in § 302 (g), it contemplated amounts received pursuant to a transaction possessing these features. Commissioner v. Keller's Estate, supra; Helvering v. Tyler, supra; Old Colony Trust Co. v. Commissioner, 102 F. 2d 380; Ackerman v. Commissioner, supra.

Analysis of the apparent purpose of the partial exemption granted in § 302 (g) strengthens the assumption that Congress used the word "insurance" in its commonly accepted sense. Implicit in this provision is acknowledgment of the fact that usually insurance payable to specific beneficiaries is designed to shift to a group of individuals the risk of premature death of the one upon whom the beneficiaries are dependent for support. Indeed, the pith of the exemption is particular protection of contracts and their proceeds intended to guard against just such a risk. See Commissioner v. Keller's Estate, supra; United States Trust Co. v. Sears, 29 F. Supp. 643; Hughes, Federal Death Tax, p. 91; Comment, 38 Mich. L. Rev. 526, 528; compare Chase National Bank v. United States, 28 F. Supp. 947; In re Walsh, supra; Moskowitz v. Davis, 68 F. 2d 818. Hence, the next question is whether the transaction in suit in fact involved an "insurance risk" as outlined above.

We cannot find such an insurance risk in the contracts between decedent and the insurance company.

The two contracts must be considered together. To say they are distinct transactions is to ignore actuality, for it is conceded on all sides and was found as a fact by the Board of Tax Appeals that the "insurance" policy would not have been issued without the annuity contract. Failure, even studious failure, in one contract to refer to the other cannot be controlling. Moreover,

authority for such consideration is not wanting, however unrealistic the distinction between form and substance may be. Commissioner v. Keller's Estate, supra; Helvering v. Tyler, supra. See Williston, Contracts, Vol. III, § 628; Paul, Studies in Federal Taxation, 2d series, p. 218; compare Pearson v. McGraw, 308 U. S. 313.5

Considered together, the contracts wholly fail to spell out any element of insurance risk. It is true that the "insurance" contract looks like an insurance policy, contains all the usual provisions of one, and could have been assigned or surrendered without the annuity. Certainly the mere presence of the customary provisions does not create risk, and the fact that the policy could have been assigned is immaterial since, no matter who held the policy and the annuity, the two contracts, relating to the life of the one to whom they were originally issued, still counteracted each other. It may well be true that if enough people of decedent's age wanted such a policy it would be issued without the annuity, or that if the instant policy had been surrendered a risk would have arisen. In either event the essential relation between the two parties would be different from what it is here. The fact remains that annuity and insurance are opposites; in this combination the one neutralizes the risk customarily inherent in the other. From the company's viewpoint, insurance looks to longevity, annuity to transiency. See Commissioner v. Keller's Estate, supra; Helvering v. Tyler, supra; Old Colony Trust Co. v. Commissioner, supra; Carroll v. Equitable Life Assur. Soc., 9 F. Supp. 223; Note, 49 Yale L. J. 946; Cohen, Annuities and Transfer Taxes, 7 Kan. B. A. J. 139.

"Legg v. St. John, 296 U. S. 489, is not to the contrary. There nothing indicated that the one contract would not have been issued without the other; there was no necessary connection between the two.

Here the total consideration was prepaid and exceeded the face value of the "insurance" policy. The excess financed loading and other incidental charges. Any risk that the prepayment would earn less than the amount paid to respondent as an annuity was an investment risk similar to the risk assumed by a bank; it was not an insurance risk as explained above. It follows that the sums payable to a specific beneficiary here are not within the scope of § 302 (g). The only remaining question is whether they are taxable.

We hold that they are taxable under § 302 (c) of the Revenue Act of 1926, as amended, as a transfer to take effect in possession or enjoyment at or after death. See Helvering v. Tyler, supra; Old Colony Trust Co. v. Commissioner, supra; Kernochan v. United States, 29 F. Supp. 860; Guaranty Trust Co. v. Commissioner, supra; compare, Gaither v. Miles, 268 F. 692; Comment, 38 Mich. L. Rev. 526; Comment, 32 Ill. L. Rev. 223.

The judgment of the Circuit Court of Appeals is

Reversed.

The CHIEF JUSTICE and MR. JUSTICE ROBERTS think the judgment should be affirmed for the reasons stated in the opinion of the Circuit Court of Appeals.

Opinion of the Court.

ESTATE OF KELLER ET AL. v. COMMISSIONER OF INTERNAL REVENUE.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

No. 371. Argued January 10, 1941.-Decided March 3, 1941.

1. Decided in part upon the authority of Helvering v. Le Gierse, ante, p. 531. P. 543.

2. That a physical examination was not required is inconclusive as to the non-existence of an "insurance risk." P. 544.

3. That the premium might not earn enough to cover profitably the annuity payable to the decedent, or that there was a miscalculation of the proper total consideration, does not in this case establish the existence of an "insurance risk." P. 544.

113 F. 2d 833, affirmed.

CERTIORARI, 311 U. S. 630, to review a judgment reversing a decison of the Board of Tax Appeals, 39 B. T. A. 1047, disapproving of a deficiency estate tax assessment.

Mr. Ferdinand T. Weil, with whom Mr. J. Smith Christy was on the brief, for petitioners.

Assistant Attorney General Clark, with whom Solicitor General Biddle and Messrs. Sewall Key, Richard H. Demuth, Maurice J. Mahoney, and Berryman Green were on the brief, for respondent.

MR. JUSTICE MURPHY delivered the opinion of the Court.

This case is companion to Helvering v. Le Gierse, ante, p. 531. In all material respects the facts are alike except for the differences to be noted. Here the annuity contract provided for annual payments of $390.84 and cost decedent $3,258.20. The "insurance" policy stipulated for payment of $20,000 to decedent's daughter at de