*389 These three cases were consolidated for hearing and decision. In each, the petitioner seeks a redetermination of its liability for income taxes proposed by the respondent. In Docket No. 29970, the respondent has determined a deficiency for the year 1924 in the amount of $685.32; in Docket No. 42881, a deficiency in the amount of $692.51 for the year 1926; in Docket No. 42882, a deficiency in the amount of $689.13 for the year 1927.
At the time of the trial, petitioner waived all except one of its assignments of error. That assignment of error raises the question of whether or not insurance premiums paid on the lives of certain officers of the petitioner corporation are deductible from gross income.
*390 FINDINGS OF FACT.
Petitioner is a corporation organized in 1908 under the laws of the State of California, with its principal office at 557 Fourth Street, San Francisco. Since incorporation it has been engaged in the business of selling and installing heating and ventilating systems, steam fittings, and sheet metal work. It has always*2052 been a close corporation. During the period from December 31, 1923, to December 31, 1927, which embraces the years in controversy, the stockholders, and the respective shares of stock of a par value of $1 held by each, were as follows:
| Number of shares of stock held | |||||
| Stockholders | Dec. 31, 1923 | Dec. 31, 1924 | Dec. 31, 1925 | Dec. 31, 1926 | Dec. 31, 1927 |
| G. A. Tuck | 41,552 | 41,552 | 41,552 | 41,552 | 41,552 |
| F. H. Green | 41,552 | 41,552 | 41,552 | 42,552 | 41,552 |
| A. Miqueau | 448 | 448 | 4,000 | 4,000 | 4,000 |
| A. Leoni | 1,822 | 2,022 | 4,000 | 4,000 | 4,000 |
| B. Puffer | 326 | 326 | 4,000 | 4,000 | 4,000 |
| J. B. LaPlante | 200 | ||||
| E. Hoake | 150 | 150 | 150 | 150 | 150 |
| Total | 86,050 | 86,050 | 95,254 | 95,254 | 95,254 |
These stockholders were all employees of petitioner. Tuck and Green, president and secretary-treasurer, respectively, have been in its employ since 1909; Miqueau, sales manager, since 1913; J. B. Leoni, superintendent of its steam fitting department, since 1914; B. Puffer, superintendent of installation work, since 1917; and E. Hoake, foreman of construction, since 1914. Each of the stockholder employees was skilled in some particular work, which made him of unusual*2053 value to the petitioner corporation.
The aggregate investment of these stockholder-employees in petitioner's business, from 1923 to 1927, was as follows:
| Date | Capital stock | Surplus | Total |
| Dec. 31, 1923 | $86,050.00 | $25,068.45 | $111,118.45 |
| Dec. 31, 1924 | 86,050.00 | 41,837.05 | 127,887.05 |
| Dec. 31, 1925 | 95,254.00 | 59,879.57 | 155,133.57 |
| Dec. 31, 1926 | 95,254.00 | 77,857.91 | 173,111.91 |
| Dec. 31, 1927 | 95,254.00 | 102,013.35 | 197,267.35 |
Petitioner's board of directors passed the following resolution on February 4, 1919:
On motion, duly made, seconded and carried, it was resolved that the premiums be paid on life insurance policies for George A. Tuck and F. H. Green. Said policies are in the New York Life Insurance Company for about $2,000 each and in the New England Mutual for $10,000 each. In case of death of *391 either party, the principal sum to be paid to the beneficiary, and stock at its inventory value at that time to be turned into the board of directors to be prorated among the stockholders according to the amount of stock they hold at that time.
The foregoing corporate action was supplemented by resolution of the directors on August 2, 1924, which*2054 provided:
Upon motion duly made, seconded and carried, it was unanimously resolved that the premiums be paid on life insurance policies for G. A. Tuck and F. H. Green. Said policies are in the Mutual Life Insurance Company for $25,000 each. In case of death of either party, the principal sum to be paid to the beneficiary, and stock at its inventory value at that time to be turned into the board of directors to be prorated among the stockholders according to the amount of stock they hold at that time.
The insurance policies and annual premiums thereon covered in the resolutions were as follows:
| Policies | Amount of insurance | Annual premium |
| Policies issued on life of G. A. Tuck | ||
| New York Life Ins. Co | $2,123.00 | $76.19 |
| New England Mutual Life Insurance Co | 10,000.00 | 279.00 |
| Mutual Life Ins. Co. of N.Y | 10,000.00 | 495.50 |
| Do | 5,000.00 | 247.75 |
| Do | 10,000.00 | 495.50 |
| Policies issued on life of F. H. Green | ||
| New York Life Ins. Co | 2,205.00 | 76.20 |
| New England Mutual Life Ins. Co | 10,000.00 | 255.00 |
| Mutual Life Ins. Co. of N.Y | 5,000.00 | 235.90 |
| Do | 10,000.00 | 471.80 |
| Do | 10,000.00 | 471.80 |
| Total | 74,328.00 | 3,104.64 |
The insurance shown in the above*2055 table is in effect at the present time. The first two policies on the life of G. A. Tuck specify as beneficiary his wife, Agnes J. Tuck, while the last three policies are payable to his executors, administrators, or assigns. The first two policies issued to F. H. Green were originally payable to his wife, Mabel Green. On October 10, 1919, there were substituted in her place the insured's executors, administrators, and assigns. This continued until August 29, 1925, when again the beneficiaries were changed, this time to the insured, as trustee, under a certain declaration of trust between himself and wife. The third, fourth, and fifth policies on F. H. Green's life originally named as beneficiaries his executors, administrators or assigns. On September 19, 1925, they were changed and made payable as follows: the third to his wife, Mabel Green; the fourth to his sister, Lula Clarry; and the fifth to insured's sons, Fred H. Green, Jr., and George R. Green.
*392 On May 4, 1925, the directors of petitioner, passed the following resolution:
On Motion duly made, seconded and unanimously carried, the following resolution was unanimously adopted by the said board of directors:
*2056 Resolved, that stock bought by any employee is not to be sold except to stockholders, and in case of termination of such employment by any employee, all stock held by such employee to be offered and sold to stockholders of record on that date through the secretary of the corporation.
The resolution was signed by both Tuck and Green. All outstanding certificates of stock were called in and the following matter stamped on the face.
This stock is subject to that certain agreement made and entered into between the Atlas Heating and Ventilating Company and the stockholders thereof.
All new shares of stock issued since the date of the resolution have been stamped likewise.
Green and Tuck did not regard the amounts expended by the corporation in the payment of premiums on insurance policies taken out on their lives as additional compensation to them and did not return such amounts as their individual income.
OPINION.
GREEN: Briefly, the facts are that the petitioner corporation paid premiums on insurance policies on the lives of its two principal stockholders. The corporation was neither directly nor indirectly a beneficiary under these policies. An understanding was*2057 had between the officers whose lives were thus insured and the corporation or its stockholders, that, in event of the death of such officer, stock equal in value to the amount paid to the beneficiaries on such policies should be turned in to the corporation and by it distributed pro rata to the remaining stockholders. The record will not support a finding that the policies were taken out or the premiums thereon paid pursuant to a plan to, by such action, encourage the other stockholders to remain with the corporation as employees. If there was such a plan, there is no evidence from which we could determine to what extent the expenditure was for such purpose. Ultimately the remaining stockholders will derive, through the distribution of the stock of the deceased officer, a substantial benefit. Section 215(a)(4) of the Revenue Acts of 1924 and 1926 is inapplicable because petitioner is not either directly or indirectly a beneficiary under any of the policies, and it remains to be determined whether the amounts paid may be deducted under section 234(a)(1) of the Revenue Acts of 1924 and 1926, which are identical, and read as follows:
*393 (1) All the ordinary and necessary*2058 expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity.
There is nothing in the record tending to establish that these expenditures were either "ordinary" or "necessary" or that they meet the requirement that they were made "in carrying on any trade or business." It seems to us that the expenditures were made largely, if not wholly, for the benefit of the surviving stockholders and that, therefore, they are not deductible under section 234(a)(1) above quoted.
Judgment will be entered for the respondent.