*777 Employees' bonuses paid over to trustees by the corporate employer, to be paid to the employees upon completion of 10 years' services, are deductible as expenses of the employer in the year of payment to the trustees.
*1136 This proceeding is for redetermination of a deficiency of $1,864.28 in income tax for the year 1932. Only a part of the deficiency is in controversy. The one issue is whether amounts paid by a corporation to trustees pursuant to bonus contracts with its employees are allowable expense deductions in the year of payment to the trustees.
*1137 FINDINGS OF FACT.
The petitioner is a corporation of Chicago, Illinois, and is engaged in the business of operating a business correspondence school. The school has a business administration course, and a secretarial course. The corporation was organized November 29, 1929.
The corporation employed salesmen under written contracts to obtain student enrollments. Under the contracts the salesman retained a cash commission from each enrollment; and it was*778 further agreed that the corporation would deposit with a bank or loan association, on or before the 15th of each month, the sum of $2 on each and every enrollment "proved up" during the preceding month, the said $2 with interest accumulations to be paid to the salesman as a bonus at the end of 10 years, provided he remained with the corporation and observed other conditions of his contract. It was provided that in the event any salesman should die before the end of 10 years and while in the employ of the corporation, the funds accumulated in his account should be distributed to his lawful heirs, provided said employee was in good standing at the date of his death. According to the terms of the contracts, the funds so deposited as a bonus to salesmen were to remain at all times during the existence of the contract the property of the taxpayer.
On or about January 2, 1931, the petitioner corporation created a trust into which were deposited the funds held by the corporation as contingent bonuses due its employees under the employment contract referred to in the preceding paragraph. The trust agreement was executed by the corporation and by five trustees (three of the trustees being*779 officers and two being employdees of the corporation), and was designated "Oxford Institute Trust Agreement." The agreement provided that the corporation was "to turn over to said trustees all funds known as contingent bonus arising out of the sales of the salesmen and managers of said company which, under the various contracts of the said trustor with its said salesmen and manager, is designated in the said contracts as contingent bonuses", and the trustees agreed to hold, manage, administer, invest, and deposit the funds pursuant to the terms of the agreement. The trust agreement contained no power of revocation. Every month since the inception of the trust the corporation has turned over to it all bonuses accrued on all salesmen's accounts which have been "proved up" within the month. The funds in whatever amounts received are immediately deposited by the trustees with building and loan associations in separately numbered accounts for each salesman, designated "Trustees Oxford Institute Fund No. ", or are invested in Government bonds for these accounts. As of December 31, 1932, the trustees held some $18,000 in building and loan *1138 deposits and some $30,000 in Government*780 bonds. During the year 1932 the taxpayer corporation paid monthly to the trustees "prove ups" for the salesmen, in the total amount of $6,406.
The corporation also employed sales managers under written contracts similar in all respects to the contracts with the salesmen. Bonus payments for the sales managers to the trust were designated "overwritings." The corporation made monthly payments of overwritings for the sales managers to the trustees in the year 1932 in the total amount of $4,980.
The corporation had an oral agreement for bonus payments for the office clerks similar to the bonus payments for the salesmen and sales managers, except the bonus for the clerks was computed on a percentage of their salaries, and they were not required to remain with the corporation for any particular length of time, the understanding being simply that they would receive the bonus provided they were in good standing when they left the corporation. During the year 1932 the corporation paid to the trustees for the office clerks the total sum of $410.
The trust plan went into effect January 2, 1931. The corporation has not since the inception of the plan or before that time forfeited any*781 of the bonus funds of the salesmen, sales managers, or office clerks through discharge from employment. The only forfeitures have occurred by reason of the voluntary retirement of employees. In the year 1932 such forfeitures amounted to the sum of $1,353.63, and this amount was included as income by the corporation on its income tax return under the item "other income" and designated "Trust Fund Accounts Forfeited." The corporation has each year included in income the amount of such forfeitures. In one case where a salesman died, his heirs were paid the sum which had accumulated in his trust fund.
The amounts paid by the petitioner to the trustees in 1932, aggregating $11,796, were ordinary and necessary expenses for that year.
OPINION.
ARUNDELL: The issue is the deductibility as "expenses paid or incurred during the taxable year" (sec. 23(a) of the Revenue Act of 1932) of three items of $6,406, $4,980, and $410 paid during 1932 by the corporation to trustees as bonuses for its various classes of employees, which amounts were subject to be paid back to the corporation if the employees failed to fulfill their contracts.
*782 Contingent bonuses for employees have been held not accruable as expenses until the occurence of the event on which liability depends. ; affd., ; certiorari denied, . See also, Fuller Brush*1139 ; ; ; . In all of these cases the corporations made no present payments on account of the contingent bonuses, but merely attempted to accrue them as expenses on their books, and they were disallowed.
The present case presents a differhent fact situation. The corporation here was under a binding liability to makes monthly payments to a trust of all bonuses accrued for its employees. ; . Each month the corporation actually paid out and expended as required by its irrevocable trust agreement the sums for which deduction is sought here. The sums were put*783 beyond the control of the corporation. The fact that they were subject to be paid back to the corporation on the happening of contingencies within the control of the employees does not change their character as present expenses to the corporation. They are deductible as "expenses paid * * * during the taxable year."
Judgment will be entered under Rule 50.