Court Opinion

ID: 9638405
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:43:08.987516+00
Date Added: 2024-06-11T18:10:06.314748
License: Public Domain

CLARK, Circuit Judge
(dissenting):
I agree with Judge Opper’s carefully reasoned opinion, 10 T.C. 544 — concurred in by the entire Tax Court — that Tavannes Associates, Inc., was not a pension or profit-sharing “trust” for taxpayer’s employees within the meaning of I. R. C. § 165(a) (1) and (2), a necessary condition to its being granted grace for complying with the remaining requirements, (3)-(6), of that section under I. R. C. § 162(d). Among relevant considerations are, first, the form of the legal device actually employed and the intent behind that choice. Concededly a corporation was chosen instead of a trust, because, as is said, “of the ‘red tape’ involved, the necessity of going ‘through court,’ and the fee expense” of the latter. While substance should control, if clear, yet these matters tend to show what the substance was. And since the assigned reasons might well have been adduced for an opposite conclusion, namely in favor of a trust, we may look beyond them to other objectives actually subserved by the plan worked out. Second, the beneficiaries were only a limited group of the employees and the benefits to the employer were substantial. Only those employees who re-r mained with the employer for five years received any grants at all. Such grants *217were not in cash, but only in stock of the new company, granted out of moneys paid in to it, in the event the employer’s business was profitable. Actually no stock was ever issued. It was expected that the new company would buy stock of the employer; it had already loaned money to the latter. Far from being a strictly limited trust for certain beneficiaries, it was a business company designed to be and actually of mutual help and assistance to both employer and the (older) employees. Third, the control was such as to facilitate these mutual objectives. The three original incorporators remained as directors, choosing their own successors until stock might be issued; and if the original directors were no longer employed by the taxpayer, then it could appoint substitute directors from among its employees.
Such factors as these show the close interconnection, if not the mutually helpful co-operation, of the two companies. They do not show a profit-sharing plan for “the exclusive benefit” of the employees or one where no part of the trust can be diverted to purposes other than such exclusive benefit. I would affirm the decision of the Tax Court.