Abingdon Potteries, Inc. v. Comm'r of Internal Revenue, Docket No. 30686.

• Decision Date: 10 October 1952
• Docket Number: Docket No. 30686.
• Citation: 19 T.C. 23
• Parties: ABINGDON POTTERIES, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

19 T.C. 23

ABINGDON POTTERIES, INC., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 30686.

Tax Court of the United States.

Promulgated October 10, 1952.

Albert E. James, Esq., for the petitioner.

Harold H. Hart, Esq., and Julian L. Berman, Esq., for the respondent.

Petitioner's board of directors on December 28, 1944, adopted a resolution to establish a pension trust for its employees and authorized a contribution of not to exceed $25,000 to such trust. No trust was in fact created during 1944; a trust was established for the first time on January 26, 1945, and petitioner contributed $23,500 to it in February 1945. Held, such payment did not accrue in 1944, and therefore could not be deducted in 1944 under section 23(p)(1)(E) of the Internal Revenue Code. Section 23(p)(1)(E) permits the deduction in the earlier year, if payment is made within 60 days of the close of the earlier year, only where the payment is otherwise properly accruable in the earlier year. 555, Inc., 16 T.C. 671, and Crow-Burlingame Co., 15 T.C. 738, distinguished.

The petitioner seeks review of deficiencies determined by the Commissioner of Internal Revenue for the calendar year 1944 as follows:

+--------------------------------------------+
                ¦Income tax                       ¦$13,591.44¦
                +---------------------------------+----------¦
                ¦Declared value excess-profits tax¦1,272.17  ¦
                +---------------------------------+----------¦
                ¦Excess profits tax               ¦37,184.52 ¦
                +--------------------------------------------+
                

The sole issue now in litigation is whether the Commissioner properly disallowed a deduction in the amount of $25,000 claimed by petitioner in its returns as a contribution to an employees' pension trust under section 23 (p) of the Internal Revenue Code. Petitioner now claims a deduction in the amount of $23,500.

FINDINGS OF FACT.

A stipulation of facts filed by the parties is hereby adopted and incorporated in these findings by reference.

Petitioner is an Illinois corporation, having its principal place of business at Abingdon, Illinois. It was originally known as Abingdon Sanitary Manufacturing Co., but in 1945 it changed its name to Abingdon Potteries, Inc. It keeps its books and files its returns on the accrual basis.

Beginning in August 1944, Leonard Fritz, an insurance broker, sought to interest two of petitioner's officers and directors, L. G. Casler and R. E. Bidwell, in an employees' pension plan, which involved participation by an insurance company. Fritz obtained certain preliminary information from these officers, such as data with respect to petitioner's payroll, which he submitted to the New England Mutual Life Insurance Company. The insurance company indicated, in October 1944, that it would accept the underwriting, but it did not bind itself to do so.

The minutes of a meeting of petitioner's board of directors, held on November 24, 1944, disclose that:

Mr. Casler discussed the question of an employees pension trust, and the Board indicated that some good plan should be adopted, and were told that we would investigate several plans and report as soon as possible.

On December 28, 1944, at a meeting of petitioner's board of directors, the following resolution was adopted:

BE IT RESOLVED that the Abingdon Sanitary Manufacturing Company establish a Pension Trust for the benefit of its employees, to be known as ‘ABINGDON POTTERIES PENSION TRUST‘, in substantial compliance with the terms and provisions of the Trust Instrument hereto attached and made a part of this resolution:

and be it further resolved that said company forthwith contribute to and pay into said Trust for the calendar year 1944 the sum of not to exceed $25,000.00. And be it further resolved that the President and Secretary of the Corporation be, and they are hereby authorized, empowered and directed to sign and seal said Trust Instrument for and on behalf and in the name of the Corporation and to take any other action for and on behalf of the Corporation which may be necessary or desirable to establish said trust.

Notwithstanding the language in the foregoing resolution there was in fact no trust instrument attached thereto. However, Fritz was present during part of the December 28, 1944, meeting of the board of directors, and he had presented a specimen trust agreement that could be used as a model for drafting a trust agreement for petitioner. Fritz neither had authority to make binding contracts on behalf of the insurance company, nor did he purport to enter into any such contracts. Before the New England Mutual would undertake to write policies in connection with a pension trust plan, it was necessary that a satisfactory trust agreement actually be executed and submitted to it for approval.

At the time of the December 28, 1944, meeting, the estimated cost of the premiums for the insurance and annuity policies, based upon the assumption, inter alia, that each eligible employee would elect to participate in the proposed pension plan, was $23,586.

On January 25, 1945, at a meeting of the board of directors, Casler and two others were appointed to serve as trustees for the proposed pension trust. No trustees had been appointed until that time.

On January 26, 1945, a trust instrument was executed by petitioner and the trustees who had been appointed the previous day. This trust agreement was patterned after the specimen agreement which had been submitted at the directors' meeting of December 18, 1944, but the actual agreement was at variance with the specimen agreement in a number of minor particulars. Although executed on January 26, 1945, the agreement contained a provision to the effect that ‘This trust shall be effective as of the 28th day of December, 1944.‘

The assent of each employee was necessary in order to make him a member of the plan. Petitioner notified its employees of its creation of a pension trust by a circular dated and issued on January 30, 1945, and as of that date none of them had yet entered the plan.

After the directors' meeting of December 28, 1944, Fritz was not able to do anything to effectuate the proposed pension plan until the trust agreement was signed and submitted to the insurance company for approval, which would then authorize him to take applications from the employees for the policies. He received such authorization about February 1, 1945, and proceeded promptly to take applications, and to assist in processing them.

On February 7 and 8, 1945, petitioner delivered two checks to the trustees in the aggregate amount of $23,500, and on February 8, 1945, the trustees issued their check in the amount of $23,500 to the insurance company. That check represented advance payment of premiums for the policies, which were actually issued and delivered at later dates. Protection under each policy, however, ran from the date of the medical examination of the particular employee. Such examinations were given shortly after February...