OPINION.
Smith :
The petitioner complains that the Commissioner failed to audit its income and profits-tax return for the year 1919 from the published report of the Department of Insurance of the State of Maryland, which report was used in auditing its returns for years prior to 1919 and for subsequent years; that if the Commissioner had audited its return by the Maryland report, it would have been entitled to a deduction from gross income of $1,083.98 addition to reserve funds more than the amount allowed by the Commissioner.
The taxing statute permits the petitioner to deduct from gross income "the net addition required by law to be made within the taxable year to reserve funds Section 234(a) (10) (a), Revenue Act of 1918. The reserve funds referred to by the statute are the reserve funds required by the statutes of the State or States in which theinsurance company transacts business. United States v. Boston Insurance Co., 269 U. S. 197. It appears from the evidence that the statutes of the State of New York required the petitioner to maintain larger reserves at January 1, 1919, and at December 31, 1919, than did the statutes of the State of Maryland. The petitioner was clearly entitled to take the deduction from gross income of the excess amount of such reserves at December 81, 1919, over the highest amount required as a reserve by statutes of any other State in which it transacted business at January 1, 1919. It is immaterial whether the highest reserve required at the beginning and close of 1919 was of Maryland or some other State. We are not informed as to the amount of the reserves required by States other than New York and Maryland. It is clear, however, that the net addition to reserves, as between the States of New York and Maryland, was not in excess of the difference between the reserves required to be held by the statutes of the State of New York on January 1, 1919, and December 31, 1919, since at both dates the reserves were in excess of those of Maryland. The petitioner, following the Maryland insurance report, claimed a deduction from gross income for the year 1919 of a net addition to reserve funds greater than the proof before us indicates it was entitled to claim. The position of the Commissioner upon this point must therefore be sustained.
With respect to the second and third points in issue, no question is raised by the Commissioner but that the one per cent net premium tax paid to the Department of Insurance of the Dominion of Canada is an income tax within the purview of section 238 of the Revenue Act of 1918. The Commissioner contends, however, that the petitioner did not comply with article 611 of Regulations 45, and that it has never filed Form 1118; that such regulation is a reasonable regulation, and that the petitioner has come forward with its proof too late and that the credit for the $4,873.60 should be denied.
The term " deficiency " is defined by the Revenue Acts of 1924 and 1926 as " the amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return; Section 273. Whether the amount shown as the tax upon the return, or the amount admitted by the petitioner to be due and collectible, is the starting point in the computation of a deficiency, has been determined by this Board in Appeal of John Moir, 3 B. T. A. 21. Upon the authority of that decision the Board assumes jurisdiction to determine the point in issue, raised in this appeal.
We are of the opinion that in any case a taxpayer appealing to this Board from a deficiency found by the Commissioner is not too late in submitting evidence to the Board. The petitioner has proven before this Board its right to a credit against income and profits tax due of $4,873.60. The deficiency found by the Commissioner must therefore be reduced in that amount.
The petitioner erroneously claimed a credit against the tax due the United States of $202.12. This tax, however, was paid and was an ordinary and necessary expense of the petitioner in the conduct of its business in 1919. In the redetermination of the deficiency the petitioner should be given the benefit of such deduction from gross income.
Order of redetermination will be entered on 15 days' notice, under Bule 60.
Tkammell concurs in the result only.