indeterminate. It is only by the voluntary action of the insured or by the terms of the policy, if the insured fails to act, that his rights or privileges under the policy may be accrued and determined. And until that happens, there is no definite amount owing by the insurer to the insured and, hence, no ascertainable property of the insured in the possession of the insurer.'
However, the Penn Mutual case, supra, and United States v. Massachusetts Mutual Life Insurance Co., 1 Cir., 1942, 127 F.2d 880, were distraint proceedings under 3710, I.R.C.1939, 26 U.S.C. 3710, upon levies made, pursuant to 3690, 26 U.S.C. 3690, upon the insured's rights to property alleged to be in the possession of the insurer. In Penn Mutual the Court further stated, 130 F.2d at page 498, that 'the property or rights to property owned by an insured in a policy of insurance are not in the possession of the insurance company so long as nothing has occurred to accrue the insurer's contractual liability.' In Massachusetts Mutual, the Court held, 127 F.2d at page 883, that 'under the circumstances present in this case the defendant insurance company is not a person in possession of the insured's property or rights to property subject to distraint within the meaning of Section 3710.' Sections 3690 and 3692, 26 U.S.C. 3690, 3692 'are not in pari materia with sections 3670 and 3671 * * *.' In re Holdsworth, D.C.N.J.1953, 113 F.Supp. 878, 880. The Third Circuit, in Penn Mutual, agreed with the holding of the First Circuit in Massachusetts Mutual that (130 F.2d at page 498) 'until the insured elected to accept the cash surrender value of his policy the insurance company was not in possession of any property or rights to property of the insured within the meaning of Sec. 3710.' These contentions are refuted by United States v. Bess, 1958, 357 U.S. 51, 78 S. Ct. 1054, 2 L. Ed. 2d 1135. Mr. Justice Brennan says, respecting the rights of an insured in the cash surrender value of an insurance policy upon his life, 357 U.S. at page 56, 78 S. Ct. at page 1058: 'The insured has the right under the policy contract to compel the insurer to pay him this sum upon surrender of the policy. This right may be borrowed against, assigned or pledged. Slurszberg v. Prudential Insurance Co., * * * (15 N.J.Misc. 423, 192 A. 451). Thus Mr. Bess (the insured) 'possessed just prior to his death, a chose in action in the amount stated (i.e., the cash surrender value) which he could have collected from the insurance companies in accordance with the terms of the policies.' (United States v. Bess, 3 Cir.) 243 F.2d 675, 678. It is therefore clear that Mr. Bess had 'property' or 'rights to property,' within the meaning of 3670, in the cash surrender value.' In a footnote at page 57 of 357 U.S., at page 1058 of 78 S. Ct., Justice Brennan adds: 'Once a federal tax lien attaches to the insured's interest, of course, the Government, in a proper action joining the appropriate parties, can enforce the lien in the insured's lifetime and thereby recover the cash surrender value.' Citing Knox v. Great West Life Assurance Co., 6 Cir., 212 F.2d 784; Kyle v. McGuirk, 3 Cir., 82 F.2d 212; Smith v. Donnelly, D.C., 65 F.Supp. 415.
Thus it appears that taxpayer had a property right in the cash surrender value to which the plaintiff's lien attached by virtue of its assessment of June 6, 1947. 26 U.S.C. 3670 and 3671; Citizens State Bank of Barstow, Tex. v. Vidal, 10 Cir., 1940, 114 F.2d 380. 'By 3670, 26 U.S.C., * * * Congress impressed a lien upon 'all property and rights to property, whether real or personal, belonging' to a tax delinquent. Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes. Not content with this language, however, Congress also provided that the lien should 'continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.' 26 U.S.C. 3671 * * *. These two sections read together indicate that a continuing lien covers property or rights to property in the delinquent's hands at any time prior to expiration. This is confirmed by Section 3678, which provides that 'whether distraint proceedings have been commenced or not,' action to enforce the lien may be instituted against 'any property and rights to property, whether real or personal, or to subject any such property and rights to property owned by the delinguent, or in which he has any right, title, or interest, to the payment of such tax.' (Italics supplied (in printed text)). For here is a plain intent to subject to the lien 'property owned by the delinquent' when suit is filed, rather than only that owned when the lien arose.' Glass City Bank of Jeannette, Pa. v. United States, 1945, 326 U.S. 265, 267, 66 S. Ct. 108, 110, 90 L. Ed. 56.
Mass. Mutual concedes that the 'cash surrender value of the policies was not diminished through advances by the Company to the insured under the untomatic premium loan provisions of the policies, or otherwise, between June 6, 1947 and February 2, 1950.' It argues, however, that the Government's lien did not become effective until the latter date, when a levy was served upon it (citingRev.Rul. 56-48, 1956-1 CB 561, which requires the actual notice or knowledge of a federal tax lien upon the interest of an insured under a life insurance policy, to create liability in the insurer to the Government, for making payments to the insured or beneficiary under the policy). This Revenue Ruling is inapposite to the case at bar because the insurer admittedly had 'actual' notice of the tax lien before making its first premium loan.
Section 3672, I.R.C.1939, 26 U.S.C. 3672 protects 'any mortgagee, pledgee, purchaser, or judgment creditor' from the effect of a tax lien arising under Sec. 3670. Clearly those premium loans made in this case may not be looked to as affording a foundation upon which the insurer may predicate its claim for the desired protection, for the essential prerequisite, lack of notice, is missing. Mass. Mutual argues, however, that when the insured elected, on November 21, 1946, as to both outstanding policies, to avail himself of the automatic premium loan option, he effectively pledged the policies even though no loans were made thereunder at that time. We do not agree. It would be the utmost speculation to say when or how much of the cash surrender value would be loaned to the insured, or if in fact any premium loans would ever be extended. In such a case it cannot be said that the insurer had a choate perfected lien. See United States v. R. F. Ball Construction Co. Inc., 1958, 355 U.S. 587, 78 S. Ct. 442, 2 L. Ed. 2d 510, and United States v. City of New Britain, 1954, 347 U.S. 81, 74 S. Ct. 367, 98 L. Ed. 520. Nor was Mass. Mutual, at the time it received notice of the plaintiff's lien, a mortgagee, purchaser or judgment creditor of the taxpayer.
As a result of the accretion to the cash surrender value of each policy by reason of payments made and premium loans credited thereto, the value of the taxpayer's contingent property right in each policy and the amount of the Government's tax lien thereon, are advancing pari passu with the cash surrender value of the policies. The insurer's contract right to offset the insured's indebtedness arising from the premium loans against the policy value created no more choate a lien upon the insured's increasing property right in the policy than would arise in favor of a lending bank upon the current balance of its debtordepositor. See Agnew v. American Inc Co., 1949, 2 N.J. 291, 299, 66 A.2d 330, 10 A.L.R.2d 232; Marmon Fanning Co. v. People's National Bank of Elizabeth, E. & A. 1930, 106 N.J.Eq. 170, 150 A. 402; United States v. City of New Britain, 1954, supra.
Mass. Mutual further objects to the form of the order submitted by the Government for failure to set forth specific amounts which that insurer is directed to pay to the plaintiff. Because the total of taxpayer's tax deficiency is greatly in excess of the aggregate gross cash surrender value of the Mass. Mutual policies, the specific amount of the Governemnt lien would be the gross cash surrender value at the time of the entry of the judgment. The successive increases in the cash value of each of the policies were disclosed in documentary exhibits furnished by the insurer and placed in evidence by the plaintiff. In compliance with a directive of this Court, Mass. Mutual thereafter prepared and submitted a tabulation indicating the then current status of each of the policies at the last preceding anniversary date of each, as follows:
Policy Anniv. Date Prem. loan Gross Net
No. last past Balance Cash Value Cash Value
'657 6/ 7/60 $ 1,868.43 $ 2,940.00 $ 1,071.57
'476 9/24/60 13,358.66 14,055.40 994.34
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