THE CAXTON PRINTERS, LIMITED v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 62142.
| Decision Date | 06 April 1933 |
| Docket Number | Docket No. 62142. |
| Parties | THE CAXTON PRINTERS, LIMITED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
S. Ben Dunlap, Esq., for the petitioner.
George E. Adams, Esq., for the respondent.
The respondent determined a deficiency of $1,196.93 in income taxes against the petitioner for the year 1929. In seeking redetermination, petitioner alleges that the respondent erred, (1) in not allowing as a deduction the sum of $8,000 which petitioner claims it set aside during the taxable year as a pension trust fund; (2) in not allowing the sum of $600 which petitioner claims it set aside as a trust insurance fund; and (3) in reducing depreciation claimed by it on printing plant, machinery and fixtures from $5,400 to $3,015.66.
FINDINGS OF FACT.
The petitioner is a corporation, organized under the laws of Idaho, with its principal office and place of business at Caldwell, in that state. It is engaged in the printing and binding business, and in the sale of school books and supplies.
Petitioner owned and used in its business during the taxable year printing machinery and fixtures necessary for its business of printing, binding, and publication, the total cost of which was carried on petitioner's books as of December 31, 1929, at the sum of $59,070.14. Of this amount respondent determined that certain items aggregating $25,059.92 had been fully depreciated in prior years. This amount representing the exhausted assets was deducted by respondent from the amount carried on petitioner's books, viz., $59,070.14, leaving $34,010.22 subject to depreciation. This $34,010.22 included $7,705.21 additions of machinery and fixtures made in 1929. On these additions respondent has computed depreciation on a half yearly basis in accordance with his regulations. The rate which respondent used was a composite rate of 10 per cent, resulting in a total allowance for depreciation on machinery, fixtures and plant equipment of $3,015.66. This amount we find to be just and reasonable.
On December 23, 1929, at meetings of the stockholders and directors, resolutions were adopted authorizing the creation and adoption of a suitable pension plan for the employees of petitioner and to provide a fund out of the annual earnings to be known and designated as "The Caxton Printers, Ltd., Pension Trust Fund," which was to be used solely to pay pensions.
The resolution adopted by the board of directors provides:
NOW, THEREFORE, BE IT RESOLVED By the Board of Directors of The Caxton Printers, Ltd.; That this Board of Directors does hereby create and provide a fund to be known and designated as The Caxton Printers, Ltd., Pension Trust Fund to be kept, segregated and set aside from the other funds of the corporation and to be used together with the interest earnings, profits and income therefrom entirely and solely to pay pensions to employees of said corporation.
Nothing further was done in 1929 toward the establishment of this pension trust fund, except to set up a reserve of $8,000 as a liability on the books of the corporation designated "Reserve for Employees Pension Fund." No assets of any kind were segregated from the general assets of the corporation in 1929, to make up this reserve. It was not until July 25, 1931, that a trust agreement was drawn up between The Caxton Printers, Ltd., as party of the first part and James H. Gipson, W. Earl Norton and Mabel S. Clore, parties of the second part, making full detailed provisions for the establishment of the trust to carry out the pension arrangement. The balance sheet introduced in evidence by the petitioner purports to show the accounts of petitioner as reflected by petitioner's books on December 31, 1928, and December 31, 1929, and among the assets shown on the balance sheet as at December 31, 1929, are cash in the amount of $3,654.34 and cash reserve for bond retirement, $1,500. On the liability side of the balance sheet is shown a reserve for employees' pensions of $8,000.
In the year 1930 an additional entry of $2,480 was added to the reserve fund account for employees' pensions, $480 of which was calculated as interest on the $8,000 placed in the reserve account in 1929, computed at the rate of 6 per cent per annum. No assets of any kind were segregated from the general assets of the corporation in 1930 at the time this $2,480 was credited to pension fund reserve account.
At a meeting of the stockholders of petitioner held on December 23, 1929, the directors were authorized to contract for group insurance on certain of petitioner's employees and a reserve of $600 was set up for that purpose and appears as a liability on the balance sheet as of December 31, 1929. This $600 was intended to include premiums of $114.73 to be paid to the Prudential Life Insurance Company for writing the group policy, and the balance to cover insurance on the life of petitioner's president, who was at that time 80 years of age, and which insurance petitioner carried itself because the president was too old to secure regular insurance, and to carry the group insurance on the employees between December 23, 1929, and January 3, 1930, the effective date of the group policy. The group policy written by the Prudential Insurance Company was not written until early in January, 1930, and there was no liability for premiums on this policy, either accrued or paid in 1929. None of petitioner's officers or employees died in 1929 and no death claims or other payments were made in 1929 from said insurance fund of $600 set up as a reserve fund on the books of petitioner.
In order for petitioner to be entitled to deductions of donations or payments made to a pension trust fund, such payments or donations must be made in compliance with the terms of the statute. We do not think that the facts connected with petitioner's setting up on its books as a liability in 1929 a reserve designated "Pension...
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