## Facts

- A life insurance company owned an office building, occupied part of it for its own operations, and rented the remaining space to tenants.
- For tax years 1923 and 1924, the company reported as gross income only the rents received from tenants.
- The company deducted taxes, operating expenses, and depreciation attributable to the entire building, including the owner-occupied portion.
- Under the Revenue Acts of 1921 and 1924, life insurers’ gross income was limited largely to interest, dividends, and rents, with specified deductions.
- Section 245(b) denied deductions for taxes, expenses, and depreciation on real estate owned and occupied in whole or in part by a life insurer unless the insurer included in gross income the “rental value” of the space it occupied, at least enough (with actual rents) to yield a 4% net return on book value after expenses and depreciation.
- Applying § 245(b), the Commissioner added imputed rental value to gross income to meet the 4% net-return floor and assessed deficiencies for 1923 and 1924.
- The taxpayer contended the imputed rental requirement amounted to an unapportioned direct tax on property (or its rental value) and that imputed rental value was not “income” under the Sixteenth Amendment.
- The Board of Tax Appeals found the provision unconstitutional; the district court and court of appeals affirmed. The Supreme Court reversed.

## Issues

1. Whether § 245(b)’s requirement to include the rental value of owner-occupied space (as a condition to deductions) imposed an unapportioned direct tax on property or its rental value.
2. Whether the rental value of a building used by its owner constitutes “income” within the meaning of the Sixteenth Amendment.
3. Whether Congress may condition, limit, or deny deductions for taxes, expenses, and depreciation on owner-occupied real estate by requiring inclusion of an imputed rental amount in computing taxable income.

## Decision

- The Supreme Court reversed the judgment below and upheld the deficiency assessments.
- The Court stated that the rental value of owner-occupied property is not “income” within the Sixteenth Amendment.
- The Court also stated that a federal tax on owner-occupied space, or on the rental value of that space, would be a direct tax requiring apportionment.
- Nonetheless, the Court upheld § 245(b) as a permissible limitation on deductions and a permissible method for computing taxable net income for life insurance companies, rather than a direct tax on property or rental value as such.

## Legal Principles

- The rental value of a building used by its owner does not constitute “income” within the meaning of the Sixteenth Amendment.
- A federal tax imposed on owner-occupied real property (or its imputed rental value) is a direct tax and is invalid unless apportioned.
- Congress may condition, limit, or deny deductions from gross income in determining the net income it chooses to tax.
- A statutory rule that adjusts taxable net income by restricting deductions unless specified computational conditions are met can be constitutional even if the required computation uses figures that, standing alone, would not be taxable “income.”

## Conclusion

The Court upheld a life-insurance-company tax provision that effectively required imputed rental value to be included in the income computation as a prerequisite to deducting building-related taxes, expenses, and depreciation, holding this was a valid condition on deductions rather than an unapportioned direct tax, while reaffirming that owner-occupied rental value is not Sixteenth Amendment income.


Helvering v. Indep. Life Ins. Co., 292 U.S. 371 (1934)