Court Opinion

ID: 4482289
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:15:25.048271+00
Date Added: 2024-06-11T14:54:01.649196
License: Public Domain

Black, /., dissenting: I wish to note my dissent to the conclusions reached in the majority opinion. In the light of certain prior decisions of this Court published in our B. T. A. and T. C. reports, it is difficult for me to see how the majority could reach the conclusion which it has reached in the instant case. I shall not write any lengthy dissenting opinion. I shall simply cite and briefly comment upon some of the cases with which, as I view it, the majority opinion is in direct conflict. First, as to the $400,008.84 appropriated by petitioner in the taxable year 1940, and the amount of $575,206.43 appropriated in 1941 and used for the purchase of funded annuity contracts for certain employees named in the group retirement annuity policy. Petitioner points out in its brief that, in the few cases where the employer’s right to the deduction has been questioned, the Tax Court has allowed the premium payments to the employer as a deduction. Petitioner cites in support of this contention certain memorandum opinions of this Court, and Phillips H. Lord, Inc., 1 T. C. 286. I shall not comment upon the memorandum opinions cited by petitioner because they are not to be found in our published T. C. reports. However, I shall briefly comment upon Phillips H. Lord, Inc., supra. I think that case fully supports petitioner’s contention. It is true that in the Lord case money was paid, in the first instance, to a trustee who then paid it as a premium to the insurance company issuing the employees’ annuity policy. There is, however, in my opinion no reason to attribute different legal consequences to a situation where, as here, the money was paid direct to the Sun Life Assurance Co. in the purchase of the group retirement annuity policy, rather than through the medium of a trustee to the Equitable Life Assurance Society for a group retirement annuity policy, as was done in the case of Phillips H. Lord, Inc. To say that a distinction exists on that kind of a ground would, it seems to me, be pure hairsplitting and without any legal justification. Therefore, I think the case of Phillips H. Lord, Inc., supra, fully supports the group retirement annuity policy premium deductions which petitioner seeks to have allowed in the instant case. Now, as to the deduction of the $1,000,000 which petitioner paid over in 1941 to the Cleveland Trust Co., as trustee, for future distribution to its employees in accordance with the plan and for the purposes named in a resolution adopted by petitioner’s board of directors on December 18, 1941, I think this deduction is on all fours with that which was in controversy in the case of Gisholt Machine Co., 4 T. C. 699. In that case the Commissioner disallowed a deduction in 1941 of $173,500 paid by the taxpayer corporation to the trustee of its newly established “Executive Employees’ Retirement Trust.” He determined that the amount was not deductible under either section 23 (a) or section 23 (p); that it was not a reasonable allowance for compensation for personal services of employees or otherwise an ordinary and necessary business expense; and that the trust was not an employees’ trust under section 165, as amended by section 218 of the Revenue Act of 1939. The taxpayer claimed that the deduction was allowable under section 23 (a) (1) (A), providing for the allowance as deduction of ordinary and necessary business expenses paid in the taxable year including a reasonable allowance for salaries or other compensation for personal services actually rendered. Petitioner conceded that section 23 (p) was not applicable and claimed no deduction under that sub-paragraph of the statute. We sustained petitioner’s contention that the deduction was allowable under section 23 (a) (1) (A), and among other things said: In our opinion, the amount of $173,500 which was actually paid by the corporation to the trustees of the employees’ retirement trust in 1941 was deductible by the corporation under section 23 (a) because it was within the compensation paid by it to its employees for services actually rendered by them. See I. T. 3346, C. B. 1940-1, pp. 62, 64. Therefore, it is unnecessary, and would be improper, to consider the question whether, if the amount did not fall within section 23 (a), it is nevertheless deductible because it falls within the description of subsection (p). * * * The majority opinion herein undertakes to distinguish the Gisholt Machine Co. case on its facts, but, to my way of thinking, the distinction which the majority opinion undertakes to draw is altogether unconvincing. To be sure, there are, as one would naturally expect, certain differences of phraseology in the trust indenture involved in the Gisholt Machine Co. case from the phraseology of the trust indenture in the instant case. However, such differences as there are, are, in my opinion, without any controlling significance. The real outstanding purpose of both trusts was to provide future financial benefits for the taxpayer’s employees who were named therein and the payments were beyond recall by the taxpayer. That was the real substance of the trust indentures in both cases, and if we were right in allowing the taxpayer the deduction in the Gisholt Machine Co. case, as I think we were, then we should allow it here. The Commissioner did not appeal the Gisholt Machine Co. case and it, therefore, stands unreversed. For other cases which I think support petitioner’s contention for the $1,000,000 deduction of the irrevocable contribution which it made in 1941 to the trust estate for the exclusive benefit of its employees, see Hibbard, Spencer, Bartlett & Co., 5 B. T. A. 464; Elgin National Watch Co., 17 B. T. A. 339; Oxford Institute, 33 B. T. A. 1136; and Texas Pipe Line Co., 32 B. T. A. 125; affd., 87 Fed. (2d) 662. Much is made of the fact, in the majority opinion, that no employee of petitioner had any such vested right in the corpus of the trust which was set up as would require him to return the amount allocated to him as income in 1941 and that none of such employees did return any of the amounts as income in that year. This, in my opinion, is without any controlling significance and it has been many times so decided by this Court. The important inquiry in a case such as we have here is: Did the taxpayer irrevocably part with the money which it paid to the “employees’ trust and, if so, does the payment fall within the ambit of “ordinary and necessary business expenses” as contemplated by section 23 (a) (1) (A) ? If these questions are answered in the affirmative, the deduction is allowable to the employer regardless of whether the amounts so paid are taxable to the employee in that particular year. The court, in affirming our decision in the Texas Pipe Line Co. case, supra, gave attention to this question and ruled against the Commissioner’s contention in the following language: “This expense was incurred and paid even though no specific employee had a vested right to the stock until some subsequent time.” Now, in arriving at the views I have expressed above, I have made no attempt to discuss whether the benefits allocated to each employee under the $1,000,000 paid to this employees’ trust in 1941, plus other compensation paid, results in excessive compensation for 1941 to some of the employees. The Commissioner in his determination of the deficiencies for 1941 attacks the reasonableness of the compensation paid to 438 out of a total of over 900 employees. It may well be that, as to some of these 438 officers and employees of petitioner in 1941, the premiums paid for the group annuity policy and the $1,000,000 paid to the employees’ trust, plus other compensation which they had already received, would result in excessive compensation for 1941. Cf. Draper & Co., 5 T. C. 822. The majority, however, makes no findings of fact upon this subject and, therefore, I make no attempt to discuss it or express any opinion as to its merit. Plainly, the majority opinion does not rest any of its disallowance of the deductions claimed in 1941 upon the ground of the unreasonableness of the payments, for the opinion, after ruling that the items in question were not deductible as compensation paid, says: “In view of our conclusion that the disbursements in dispute did not constitute compensation paid for services rendered, any question of their reasonableness becomes moot.” Therefore, it is plain that if any part of the deductions in dispute is to be disallowed on the ground of unreasonableness, the majority opinion would have to be based upon further and additional findings of fact and this case would have to be reconsidered. This fact is made all the more plain when it is considered that the Commissioner has only determined that the total compensation of 438 of petitioner’s employees was excessive out of a total of more than 900 which are involved. For reasons above stated, I respectfully dissent from the majority opinion.