In Uncategorized on 05/10/2023 at 16:40

Echoes of the cigar-loving Marxist quipster today, as Judge Patrick J. (“Scholar Pat”) Urda deals with an insurance broker who places insurance his own life and wants to omit the premiums he received for that purchase from his income.

Doesn’t matter whose life is insured. Premiums paid to brokers for placement of life insurance policies are taxable to the broker.

The case is Donald L. Gould, Docket No. 28019-21S, filed 5/10/23, an off-the-bencher.

“At trial, Mr. Gould credibly testified that he summarized and submitted to his tax return preparer the various commissions that he received for [year at issue] by means of a statement written in long hand. He further explained that it was his understanding from long experience in the life insurance field that commissions received by a broker with respect to insurance purchased on that broker’s own life were not taxable. He asserted that the deduction he claimed for “Premiums Received” was essentially meant to exclude the amount of commissions he received for policies purchased on his own life, consistent with that understanding.” Transcript, at pp. 7-8.

It’s unfortunate that what should be a reduction in premium, like getting a discount from a seller of nondeductible goods, is not exempt, as would be a mere reduction in price. But it’s illegal in most states to rebate insurance premiums (I don’t practice in TX, where Mr. Gould worked during year at issue, so I don’t know their laws, but I’d be surprised if that was allowed).

Anyway, Judge Scholar Pat has somber reasoning and copious citation of precedent (that I’ll exclude).

“As to the deduction, Mr. Gould’s understanding of the treatment of commissions with respect to insurance purchased on a broker’s own life is incorrect. Both this Court and the U.S. Court of Appeals for the Fifth Circuit long ago recognized that commissions on such insurance constitute taxable income. An analogous rule applies in other contexts, such as the treatment of the commission a real estate agent receives for a house that he buys for himself or that a stockbroker receives with respect to his personal account activity. As the deduction here was meant to back out the amount of commissions that Mr. Gould received for insurance purchased on his own life, we accordingly will disallow it.” Transcript, at pp. 8-9. (Citations omitted).

You can bet your life,  buy a house, or trade securities, but you have to pay tax.


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