we have six cases for us today and they'll be six arguments we'll take a break at some point we'll see how things go our first case is peterson versus commissioner internal revenue seventeen h expenses for wages vacation time for its employees and the reason we're here is because the tax court disallowed those deductions claiming that the employees at the corporation that sponsored this aesop were considered indirect owners of the corporation and thus the employer was not allowed to deduct those expenses if true based employer was not allowed to deduct those expenses until the cash basis employees and included in income the following year when those were actually also section forty nine seventy five they are not subject to subchapter b of the code where section two sixty seven comes from he said aesop's are creatures of statute  real key point and if he doesn't want to make sure i know your position why do you say at that the requirements of subchapter be the two sixty seven that they're mutually exclusive of subject their own accounting rules as i'm probably not first mention this to you they're quite luminous and quite intense beginning a section for one there's a whole lot of material there as to how you stop accountings be done that is different from that which is done corporation in direct ownership requires there the aesop to be a trust and the participants are the employees be considered in a fisheries under that register and that's that's an issue you're raising but that's different from the one you just raised employees have to be considered indirect owners of the corporation right for subchapter b to apply it's they don't own stock in their own name right the only way they can beat the way the tax court considered that incorrectly was  shares be owned by a trust if you that was adopted as a way to have to have the shares held but again under risk twenty nine title twenty nine eleven thirty two states that the plan is legal entity not stress adjectives are used have their own type have their own rules of your own tax returns you know their real estate investment trusts they're not subject their taxes determine if you're eighty six and eight fifty seven is the most of which is fair to say that your argument depends on our as i mentioned the code has a number of other species of trusts that it referenced each time it does that it has a separate set of accounting rules for those kinds of trusts you know subchapter j were tresor described in the clayton case a new site went out to make a difference and when they show up that means code is wanting to say we are treating those as different from when you stand alone trust what you're saying that if you obliterate the now well if it's a qualified press than the other trust but i would think that qualified for us grantor trust the various types of trust addressed in the codes are called trust and if we could use the word trust without modification and doesn't stay in the exemption for use of trust then it's a trust then it covers trust for the relation rules yeah and well you know i have to disagree because wherever the adjectives are there it means in different accounting rules apply here and some different compliance rules require apply and that's the big difference here you know again subchapter b was written for taxable trusts in considered owned by the employees i know for purposes of certain sections in the internal revenue code yes which are listed which are two sixty seven of one of those who sixty seven is not one of those and their number batra fusion rules made given for aesop's in terms of the definitions and accounting and all of those reference the attribution rules in section three eighteen none of them represents to sixty seven that's done in forty nine seventy five that's done in section four zero nine it's done in section six sixty four whenever you're looking at what rules apply to aesop's what kind of a creature are aesop's k they have got in there's attribution rules they adopt section three eighteen they don't adopt section two sixty seven so that's what that's the crucial distinction here the aesop is simply not a trust as was contemplated by two sixty seven in fact as corporation aesop's didn't exist at the time to sixty seven was inactive in its current form there is one more issue i need to touch on and i reserve my remaining time for a bottle and that is in any case detached court decision is in error because it disallowed the entirety please the court my name is jennifer rubin and i represent the commissioner for internal revenue in this case i believe that the opening argument really put a finger on one of the critical problems with the tax payers argument here a related party and the language here is is clear it is uses trust in a broad term along with other broad terms likewise created by other start chapters of of this rule that applies to the tackle entity the as corporation that is trying to make its adoption on its tax return and we have a whole lot of argument going on about well how are  section two sixty seven is admirably twitter and the legislative history makes it stylish is why congress wanted a very clear cut and this is shown from one hundred thirty seven forward that they wanted a very clear cut wall t has to be a trust involved and you could look at the divine it's watched and revenue ruling eighty nine dollars fifty two would say you know it really needs to be a truck to be a qualified for and even if it really needs to have a trustee and it needs out the beneficiaries not have the sort of type of control over the property that is inconsistent with the trust in order for it to be a qualified trust just like any other type of trust the qualifier trust a nervous exists for a specific reason it's to find a trustee in charge in control of property for the benefit of the other person that's exactly what happened with the qualified trial you know if you also look at three a team which the taxpayers rely heavily on both in their argument today but also in all their briefing that actually establishes i think pretty clearly congress understood the terms for us to include employees trusts such as an isa for otherwise why would they have created an exception that language would be completely  clear they knew about the attribution of all that is now to sixty seven they cited it in the house report dealing with well let's create a new attribution rule for corporate distributions  number two they knew how to make an exception they made it in three eighteen they didn't make it it's you sixty seven and number three that they chose to maintain to sixty seven in its current form which would seem to be a pretty powerful argument against reading to sixty seven narrowing to exclude employees trusts so you put all this together with the with the with the meaning of trust throughout the internal revenue code with the  the interpretation of common law trust that underlies a refund and what you really find here is you look at the entity and you say is there a trust to your relationship or you're maintaining or preserving control and for the benefit of was getting some sort of an a crude but i'm paid expense i mean ultimately what there may be some sort of decision making as to who owns the shares but there's really no debate in this case the actually illustrates the point that qualified trust and trust are not same thing there's no question that ruling the trust existed the question was whether it was a qualified trust for for the purposes they're in so as i said preston qualified trust are separate separate species that indicates that the second aesop's are not like any other trust as may be stated trusts are described come out of subchapter j that describes their accounting rules that describes trusts that  is actually quite overstated for that matter the corporate set up has the same kind of to do surely obligation or relation in terms of shareholders put money into the corporation the board of directors runs it you know there's still a fiduciary obligation there but that's not that now or for profit corporations should be considered trusts and last note on the terms of three eighteen i know that the services argued that if qualified for us are different from trusts there's no reason to state that separately i would say it's helpful to have it there because it avoids frankly this exact situation coming up and i also have to say with respect three eighteen at the direction rules are not at issue you have to view sion as you know what w