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issue, to receive the commission income. Petitioner, in this
regard, relies primarily on the Supreme Court’s decision in
Commissioner v. First Security Bank, 405 U.S. 394 (1972), a case
whose facts are strikingly similar to those now before us. In
First Security, two banks, wholly owned subsidiaries of a holding
company, offered credit insurance to their borrowers. The
premiums would be forwarded to an independent insurer, which
would then reinsure the policies with an insurance company which
was also wholly owned by the holding company. The subsidiary
insurance company would receive 85 percent of the premiums, and
the outside insurance company, which furnished actuarial and
accounting services, kept the remaining 15 percent. The banks
received no commissions or payments for selling the insurance.
The Commissioner, pursuant to section 482, determined that a
percentage of the premiums was allocable to the banks to properly
reflect commission income.
The Supreme Court set aside the Commissioner’s allocation.
The Court emphasized that, under Federal law, the banks were
prohibited from receiving commissions. Id. at 401. Since the
banks could not have legally received that income, the Court
determined that the holding company did not improperly utilize
its control over its subsidiaries to distort income. Id. at 403-
404. In its analysis, the Court found no decision of the Supreme
Court wherein a person had been found to have taxable income that
he did not receive and that he was prohibited from receiving.
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