PARKER PEN COMPANY v. O'DAY, 11586.

• Citation: 234 F.2d 607
• Decision Date: 19 June 1956
• Docket Number: No. 11586.,11586.
• Parties: The PARKER PEN COMPANY, Plaintiff-Appellant, v. Joseph J. O'DAY, Executor of the Estate of Frank J. Kuhl, Former Collector of Internal Revenue; George Reisimer, Former Acting Collector of Internal Revenue; and Oscar M. Jonas, Collector of Internal Revenue, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

234 F.2d 607 (1956)

The PARKER PEN COMPANY, Plaintiff-Appellant, v. Joseph J. O'DAY, Executor of the Estate of Frank J. Kuhl, Former Collector of Internal Revenue; George Reisimer, Former Acting Collector of Internal Revenue; and Oscar M. Jonas, Collector of Internal Revenue, Defendants-Appellees.

No. 11586.

United States Court of Appeals Seventh Circuit.

June 19, 1956.

James J. Costello, Jr., K. Raymond Clark, Chicago, Ill., for plaintiff-appellant.

Charles K. Rice, Asst. Atty. Gen., Harry Marselli, Atty., Tax Division, U. S. Dept. of Justice, Washington, D. C., Edward G. Minor, U. S. Atty., Milwaukee, Wis., Lee A. Jackson, I. Henry Kutz, George F. Lynch, Attys., Dept. of Justice, Washington, D. C., for appellees.

Before LINDLEY, SWAIM and SCHNACKENBERG, Circuit Judges.

SWAIM, Circuit Judge.

The appellant, taxpayer, is a corporation with its principal place of business in Janesville, Wisconsin. The Commissioner of Internal Revenue assessed a tax deficiency against appellant for the fiscal year ending February 1943 on grounds which included the partial disallowance of a deduction for contributions to a pension trust and to a profit-sharing trust. The appellant paid the deficiency assessment and taxes for the next year on the same basis. Appellant then filed its claim for a refund of $75,000 with the Commissioner of Internal Revenue. After its claim was denied plaintiff-appellant filed this action in the District Court.

Section 23(p) of the Internal Revenue Code of 1939 permitted the deduction from gross income of "contributions of an employer to an employees' trust or annuity plan * * *." 26 U.S.C.A. § 23(p). Section 23(p) (1) (A) (i) allowed the deduction of contributions to a pension trust, but not in excess of 5 per cent "of the compensation otherwise paid or accrued during the taxable year to all the employees under the trust." Section 23(p) (1) (C) allowed the deduction of an employer's contributions to a stock bonus or profit-sharing trust, but not in excess of 15 per cent of the total compensation of all employees under the trust. Section 23(p) (1) (F) provided that when an employer has both a pension trust and a profit-sharing trust, with at least some employees sharing in both, and deducts payments to both of them under the two sections outlined above, the total amount deductible shall not exceed 25 per cent of the compensation paid the employees who are the beneficiaries of either one or both of the plans.

The appellant makes some payments that are deductible under Section 23(p) (1) (A) and other payments that are deductible under Section 23(p) (1) (C). If the 5 per cent and 15 per cent limitations contained in these sections, respectively, are applied, the appellant will be able to deduct $27,418 less than it would if only the 25 per cent overall limitation in Section 23(p) (1) (F) is applied. The appellant claims that when the employer contributes to both a pension and a profit-sharing fund so that Section 23(p) (1) (F) applies, only the 25 per cent limitation in that section is applicable. In other words, contributions to both funds should be lumped together and the total amount deducted as long as it was not over 25 per cent of the yearly compensation of all the employees under the plans. The Government argues that the individual limitations of 5 and 15 per cent still apply to their appropriate contributions, and that the 25 per cent in subparagraph (F) is a further limitation on the total of the two. (It would be very possible, without subparagraph (F), for the total amounts deductible under subparagraphs (A) and (B) to be over 25 per cent because Section 23(p) (1) (A) (ii) provides that the employer may also deduct "any excess over the amount allowable under clause (i) 5 per cent necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee * * *." 26 U.S.C.A. § 23(p) (1) (A) (ii).)

All the facts have been stipulated, and the entire case has been reduced to one clear cut question of law: does Section 23(p) (1) (F) of the Internal Revenue Code of 1939 apply as a further limitation on Sections 23(p) (1) (A) and (C), or does it constitute the only limitation on the amount deductible when an employer contributes to both a pension and a profit-sharing trust? The District Court held for the Government: that subparagraph (F) was a further limitation upon subparagraphs (A) and (C). We have found no other decision upon this question.

The appellant begins its argument with the proposition that "when the intent or meaning of a tax statute is doubtful, it is construed most strongly against the Government and in favor of the taxpayer," and cites Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211. The Gould case, in common with the others cited, involves the interpretation of a section that imposes the tax. The Court held that:

"In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the Government and in favor of the citizen." 245 U.S. at page 153, 38 S.Ct. at page 53. (Our emphasis.)

But this long established rule of construction does not help the appellant here where we are dealing with a statute allowing a deduction to the taxpayer. It is an equally familiar rule of tax law that statutes creating deductions are to be strictly construed against the taxpayer. Helvering v. Inter-Mountain Life Insurance Co., 294 U.S. 686, 55 S.Ct. 572, 79 L.Ed. 1227; Portland Gasoline Co. v. Commissioner, 5 Cir., 181 F.2d 538.

In interpreting an act of the Congress we are trying only to determine what the Congress intended. It is usually helpful to consider the purpose of the act and its legislative history. The appellant argues that the legislative history of Section 23(p) indicates that its interpretation of the effect of subparagraph (F) is correct. In support of this argument the appellant refers to the Senate Finance Committee Report and the Conference Committee Report on the bill that became the Revenue Act of 1942, 56 Stat. 798, 863-865. These reports merely repeat the language of the statute. For example, the appellant quotes from Senate Report No. 1631, 77th Cong. 2d Sess., p. 140, discussing Section 23(p) (1) (F):

"If an employer has a pension trust plan or an annuity plan and in addition a profit-sharing or stock-bonus plan then, unless no employee is a beneficiary under more than one trust, or a trust and an annuity plan, the total amount deductible in a taxable year under such trust and plans shall not exceed 25 per cent of the compensation otherwise paid or accrued during the taxable year to the employee beneficiaries. Provision is made, subject to certain limitations, to carry over for the purpose of deduction in succeeding taxable years amounts contributed in any year in excess of 25 per cent of such compensation."

This statement is certainly not decisive of the Congressional intent on the question before us.

A...