Court Opinion

ID: 4482691
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:38.221343+00
Date Added: 2024-06-11T15:03:39.258518
License: Public Domain

Fay, J., concurring: I concur with the result in the majority opinion. I must respectively dissent, however, from the reasoning by which the majority arrived at its conclusion. Although both petitioner and respondent here argued that section 404 applied to the extended vacation plan in this matter, I can see no reason why this Court chose to enter into that discussion. Congress has clearly indicated that vacation benefits are governed by the rules of section 162. Any reference to section 404 is not only unnecessary but inappropriate under these facts. The majority has aptly pointed out that Congress intended the deduction for vacation benefits to be within the purview of section 162. See sec. 97 of the Technical Amendments Act of 1958, Pub. L. 85-866, and its subsequent reenactments to include any taxable year ending before January 1, 1978. See also S. Rept. No. 92-1290, 92d Cong., 2d Sess. (1972), 1972-2 C.B. 733. See also S. Rept. No. 1622, to accompany H.K. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., p. 305 (1954), indicating that vacation pay is one of the items for which a reserve may be set up under section 462. There is no reason to repeat that discussion here. The various legislative reports which indicate that section 162 controls the deduction of vacation benefits do not mention or consider a potential problem with the provisions of section 404. The issue presented here is therefore easily resolved by a proper application of section 162, obviating any analysis of the applicability of section 404 to vacation benefits. The majority, however, was motivated to approach this matter by first considering the applicability of section 404, which I believe to be unwarranted.1 They would have us adopt a rather strict and limiting “similar test” (similar to a stock bonus, pension, profit-sharing, or annuity plan), to determine the applicability of section 404 to various methods of deferring compensation. I find this “similar test” to be erroneous in that it unduly narrows the restrictions Congress originally intended when it enacted this section. Congress has clearly indicated that the purpose of enacting section 404 and its predecessors was to encourage employers to adopt qualified2 methods of deferring compensation for its employees. See H. Eept. No. 2333, to accompany H.E. 7378 (Pub. L. No. 753), 77th Cong,, 2d Sess. (1942). To this end, section 404(a) (5) provides a less desirable treatment to employers who devise methods of deferring compensation which are not qualified.3 To restrict the scope of section 404, as the majority would have us do, would defeat the express purposes for which it was enacted. Further, I believe the majority’s gratuitous discussion of section 404 may haunt this Court in the future. The genius of the human mind will undoubtedly be prolific in this area. I anticipate practitioners devising an incalculable number of unqualified arrangements which will clearly have the effect of deferring compensation, yet escaping the clutches of section 404 by not conforming to the “similar test.” The impact of the “similar test” advocated by the majority would permit ready evasion of our revenue laws. The potential for abuse in this area is enormous. In addition, it will be very difficult for the tax bar to ascertain from the majority opinion what standards this Court will adopt in determining what is, or is not, similar.4 In view of this uncertainty, Congress may deem it necessary to clarify its position as to the applicability of section 404 to various methods of deferring compensation. Until such time, however, that the standards for applicability do become clear, taxpayers and their planners face an uncertain and 'haphazard road in planning their affairs. TáNNENWald and Qtjealy, JJ., agree with this concurring opinion.   Indeed, no matter what conclusion the majority reached In Its theoretical discussion of the parameters of sec. 404, the vacation benefits before us are still within the scope of sec. 162. Therefore that portion of the majority opinion Is not essential to the true holding In this case.    See sec. 401.    Sec. 404(a) (5) provides presently : (3) Other plans. — If the plan is not one included in paragraph (1), (2), or (3), in the taxable year in which an amount attributable to the contribution is includible in the gross income of employees participating in the plan, but, in the case of a plan in which more than one employee participates only if separate accounts are maintained for each employee.    See New York Seven-Up Bottling Co., 50 T.C. 391 (1968), which the majority attempts to fit within its “similar test.” As the trier of fact in New York Seven-Up Bottling Co., supra, it is clear to me that the deferred-compensation arrangement therein is not “similar to a pension plan,” nor does it resemble the other plans enumerated in sec. 404.