64 T.C. 1011 (1975), 4046-74, Catawba Industrial Rubber Co., Inc. v. Commissioner of Internal Revenue
|Citation:||64 T.C. 1011|
|Opinion Judge:||DRENNEN, Judge:|
|Party Name:||CATAWBA INDUSTRIAL RUBBER CO., INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT|
|Attorney:||Romulus S. Watson, for the petitioner. Wright Tisdale, Jr., for the respondent.|
|Case Date:||September 09, 1975|
|Court:||United States Tax Court|
Petitioner is an accrual basis taxpayer with a fiscal year ending Apr. 30. On Apr. 25, 1972, petitioner's directors approved a proposed profit-sharing plan and authorized the creation of a trust to administer the plan. A plan and trust agreement were executed on June 24, 1972, and petitioner's first contribution to the trust was made on July 13, 1972. Respondent subsequently ruled that the trust was qualified under sec. 401(a), I.R.C. 1954. Held, a qualified profit-sharing trust was not in existence in petitioner's fiscal year 1972. Held, further, petitioner's contribution to the trust made July 13, 1972, was not an accruable item in 1972 and is not deductible in that year under sec. 404(a) or 404(a)(6), I.R.C. 1954.
Respondent determined a deficiency in petitioner's corporate income tax for its fiscal year ending April 30, 1972, in the amount of $9,484.45. The issues for decision are: (1) Whether petitioner established a profit-sharing trust, qualified under section 401(a), I.R.C. 1954, by April 30, 1972, the final day of its taxable year 1972; and (2) whether the contribution of $19,759.25 made by petitioner to the profit-sharing trust on July 13, 1972, was deductible on petitioner's corporate income tax return for its taxable year 1972.
All of the facts have been stipulated and the stipulation of facts together with the exhibits attached thereto are hereby incorporated by reference. Only the facts necessary for an understanding of this opinion are herein summarized.
Petitioner Catawba Industrial Rubber Co., Inc. (sometimes referred to as petitioner or Catawba), is a North Carolina corporation whose office is located in Charlotte, N.C., and which is engaged in the business of sales of rubber and related products. An accrual basis taxpayer, petitioner reports its taxable income based on a fiscal year ending April 30.
Petitioner filed its tax return, Form 1120, for the taxable year ending April 30, 1972, with the Southeast Service Center at Memphis, Tenn. On line 24 of said return $19,759.25 was claimed as a deductible contribution to a profit-sharing plan. Respondent determined that the claimed deduction was not allowable for petitioner's taxable year ended April 30, 1972, for the stated reason that no valid profit-sharing plan was in existence as of April 30, 1972, and no written trust instrument, which precluded the prohibited diversion of funds, had been executed as of April 30, 1972. Accordingly, respondent issued a notice of deficiency on March 29, 1974, in the amount of $9,484.45
On April 25, 1972, the board of directors of Catawba held a special meeting to consider the establishment of a profit-sharing plan. The minutes of that meeting contain the following recitations:
The directors of the corporation have for some period of time considered the feasibility of establishing a Profit-Sharing Plan and several discussions have been had concerning same. These discussions have been formalized and documented in a Corporate Profit-Sharing Plan which was exhibited to all directors and studied by the said directors.
The board of directors unanimously approved the plan and instructed all appropriate parties to take what action necessary in order to have this plan duly qualified as provided under the appropriate sections of the Internal Revenue Code.
It was brought to the attention of the board of directors that it was necessary to execute a Trust in connection with this Corporate Profit-Sharing Plan, said Trust to have certain administrative functions in connection with the plan. The Trust document was discussed and reviewed by all directors and the directors unanimously approved the provisions of the Trust and in addition authorized the disbursement of $100.00 to said Trust in order to make the Trust operative.
It was also pointed out to the board of directors that a disbursement equal to approximately 15% of the gross annual payroll out of the profits of the corporation was to be made to the Trust each year. The directors unanimously approved a resolution directing the corporate officers to make the appropriate disbursement to the Trust as provided by the Corporate Profit-Sharing Plan.
The trust agreement referred to in the April 25 meeting was finalized and executed by the appropriate parties on June 14, 1972, as was the written corporate profit-sharing plan of Catawba. That same day an application for determination that the plan and trust qualified under section 401(a), together with supporting documents and information, was forwarded to the District Director, Internal Revenue Service. In the application it
was stated that the plan was adopted April 25, 1972, with an effective date of April 30, 1972, and that the trust was executed April 28, 1972. On May 30, 1972, the profit-sharing plan was communicated to petitioner's employees by petitioner in writing.
Petitioner received a favorable determination letter from the District Director of Internal Revenue, Greensboro, N.C., dated July 3, 1972. That determination letter specified June 14, 1972, as the adoption date of the plan and thus the date of qualification. That date was based upon the date of the execution of the trust instrument. Despite the authorization given at the April 25 directors meeting, petitioner did not make its first...
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