Court Opinion

ID: 4497891
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:39.937266+00
Date Added: 2024-06-11T14:54:15.335181
License: Public Domain

Harron,
concurring: The petitioner appears to have included in its gross income, on its return, the earnings of the St. Louis office, inclusive of the sum paid to Jennie Flarsheim. The sole question is whether petitioner is entitled to deduct in 1934 the $12,000 paid to Jennie, as a business expense.
*203The pleadings and the briefs submitted in this proceeding represent greatly belabored straining at theories conceived in confusion. One misdirected argument after another from counsel for one party has brought forth equally misdirected reply arguments from counsel for the other party. Counsel for each party verily misses the forest for the trees. Determination of the question turns upon the proper classification, for tax purposes, of the payment made to Jennie. Flarsheim. While I concur in the result reached, I reach that result on a different ground than does the majority opinion.
The answer to the question in this case is to be found by analysis of the agreement of September 13, 1928. It is clearly a contract entered into for the purpose of retaining the services of Milton Flarsheim in the employ of petitioner. Milton agreed to remain in petitioner’s employ in consideration for petitioner’s agreement to pay some sum annually to Milton’s widow upon his death. The liability and the amount to be paid to the widow was made contingent upon the existence of net earnings in any year of the St. Louis office; and upon the amount thereof per year; and upon whether in any prior year less than $12,000 was paid to the widow. By its specific terms, the agreement does not state that petitioner agreed to pay to Milton any extra compensation for his services at any time. It is not accurate to conclude that the sums paid to Jennie Flarsheim represented additional compensation for the past services of Milton. However, from the terms of the agreement, it is close to reality to conclude that the payments to Milton’s widow represented a pension to her for the duration of her life. Under the facts, such is a reasonable description of the nature of the payments to the widow of an employee of petitioner. It does not affect the nature of the payments, considered as pension payments, that the amount payable per annum to Jennie was made contingent upon the amount of the net earnings of the St. Louis office. The payment of a pension and the amount thereof can be the subject of a contract.
Once the nature of the payment to Milton’s widow is established to be in the nature of a pension, the matter of petitioner’s right to deduct the amount paid in the taxable year pursuant to the contract is not difficult. The liability to pay the sum in question accrued in the taxable year because petitioner’s liability to make the payment was contingent in each year, and in 1934 the facts determinative of the liability occurred. The expenditure was proximately connected with petitioner’s business, having been made in fulfillment of an obligation under a contract entered into in connection with petitioner’s business. Further, the Commissioner, by his own regulations, has ruled that amounts paid by a taxpayer for pensions to retired employees or to their families or others dependent upon them, are *204proper deductions as ordinary and necessary expenses. Regulations 86, article 28 (a)-9, Act of 1934. It is reasonable to hold that the above regulation applies to amounts paid as a pension to the widow of an employee. The deduction is allowable as a business expense in the taxable year, upon the above stated grounds.