*239 Decision will be entered under Rule 50.
An amount reasonably related to services performed and irrevocably paid in 1941 by a corporation to a retirement trust for selected employees held deductible as a business expense under section 23 (a), Internal Revenue Code, irrespective of its possible aspect as a contribution under section 23 (p) to a pension trust such as described in section 165.
*699 The Commissioner determined deficiencies for 1941 of $ 28,899.35 income tax, $ 13,352.92 declared value excess profits tax, and $ 95,740.40 excess profits tax. Petitioner claims a deduction of $ 173,500 paid to the trustee of "Executive Employees' Retirement Trust" established by it in 1941.
FINDINGS OF FACT.
The petitioner, a Wisconsin corporation organized in 1889, is engaged at Madison in the manufacture and sale of turret lathes and other machine tools. Its income and profits tax returns were filed in Wisconsin. In 1941, of its 375,000 authorized common shares, 267,000 were issued and outstanding. They were not listed on any stock exchange. Approximately 23,000 shares were sold to the public. No individual held a controlling stock interest.
At a special meeting of the board of directors December 19, 1941, the following resolution was adopted:
Whereas, the accomplishments of the Gisholt Machine Company and profits realized or anticipated by the Company during the year 1941 have been due, in large part, to the skill and diligence of many of its managerial*241 employees, their assistants and certain employees who are on a fixed salary basis, the work of whom, during the past year, has been substantially enhanced, as well as higher responsibilities imposed upon them, and
Whereas, although the wages of hourly rated employees have been substantially increased during the year, there has been little advance made in the salaries of officers or employees in important and key positions, and
Whereas, this Board deems it for the best interests of the Company that a fund be provided, part of which shall be expended as additional compensation in cash to some of its salaried employees, and part of which shall be placed in an Executive Employees' Retirement Trust, the apportionment of the said fund as between cash payments and placement in the Trust to be determined by a Special Committee to be appointed by this Board:
Now, Therefore, Be It Resolved, That for the purpose of developing and maintaining in service executives of ability, and to recognize enterprising employees who have not as yet attained executive status, there be, and is hereby, set aside for payment during the year 1941 a sum of money not exceeding three hundred twenty-five thousand dollars*242 in amount to be used in part for the *700 purposes of paying additional compensation in cash to some of the salaried employees of the Company, and in part to establish an Executive Employees' Retirement Trust substantially in accordance with an Agreement or Indenture of Trust submitted with this resolution, and identified by the initials of the Secretary.
Be It Further Resolved, That the employees for whose benefit such fund may, or will be used, be and they are hereby designated as those officers and employees whose names are attached to this resolution as Exhibit "B."
Be It Further Resolved, That George H. Johnson, President of the Company, be and he hereby is appointed by virtue of his office, as an Individual Trustee, for such length of time as he remains in office. That Eugene A. Coombs, Woodbridge Bissell, and H. Stanley Johnson, Jr., be and each is hereby appointed as an Individual Trustee to hold their offices for the terms of one, two, and three years respectively; and The First National Bank of Madison, Madison, Wisconsin, is hereby appointed as Corporate Trustee.
Be It Further Resolved, That Hobard S. Johnson, George H. Johnson, and William H. Spohn be, and they are*243 hereby appointed as a Special Committee of this Board to apportion (within the limits of this Resolution) the amount allocated for the benefit of such employees, and in its sole discretion, the said Committee be, and it hereby is authorized to pay to or deliver over any part of the amount which is allocated to any one employee in cash, and/or to set up any part of said allocation under the Executive Employees' Retirement Trust. Said Committee shall be guided solely by its determination as to what is for the best interest of the employees and of the Company in accomplishing the purpose set out in this Resolution and in the Trust Indenture referred to herein; and there is not intended to be and there is not granted to any employee, by virtue of this Resolution or the said Indenture in writing, any right, power, or capacity to receive any part of any allocation made to him, except under such conditions as may be prescribed by the said Committee.
Be It Further Resolved, That there is hereby conferred upon the Committee herein created full power to act; and the disbursing officers of this Company be and they hereby are directed to make such payments to the order of said Committee as it*244 may, in writing, designate to be made.
Be It Further Resolved, That when the Committee herein created has made its report, Schedule B of the Trust Indenture be completed in conformity to said report, insofar as the said Committee shall determine that all or part of the sum allocated to any employee shall come within the provision of the Executive Employees' Retirement Trust.
Be It Further Resolved, That the proper officers of this Company be and they are hereby authorized to execute the said Trust Indenture, substantially in the form as it is attached to this Resolution (the form whereof is hereby approved), subject, however, to such changes and amendments as may be approved by counsel as not materially contrary to the tenor and import of this Resolution, all of which will be evidenced and concluded by the act of the President of the Company in executing said Trust Indenture in its present form, or as it may be amended pursuant to this Resolution.
Be It Further Resolved, That the action of this Board evidenced by the adoption of this Resolution and the payment of additional compensation, or the placement of funds under said Executive Employees' Retirement Trust shall not be deemed*245 or construed to obligate the Company or any future Board of Directors to continue to make payments, either in cash or by placement in trust, and nothing contained in this Resolution shall be construed as giving rise to the implication that the Company or the Board of Directors of the Company intends to continue cash payments or maintain the trust for any length of time.
*701 Exhibit B attached to the resolution listed the names of 197 officers, executives, and administrative and clerical employees for whose benefit the fund could be used.
Pursuant to the resolution, on December 24, 1941, an agreement of trust was made by petitioner, four individuals, and the First National Bank of Madison, creating an "Executive Employees' Retirement Trust." The trust fund was to consist of cash transferred from time to time by the petitioner, and was to be held for a retirement income or estate for the employees designated. Seventeen of the employees were named as participants and others could be designated from time to time. The First National Bank of Madison was designated as the trustee to hold, collect, account for, and distribute the assets and income of the trust. The net income was*246 to be added to the corpus of the trust fund or the separate funds. The trust agreement provides, inter alia, as follows:
The trust herein created is for the exclusive benefit of the employees of the Company who now are, or may hereafter become participants hereunder.
The Company shall have no powers, rights, claims, or demands whatsoever to or against the Trust Fund except the right to a proper application thereof by the Trustees in accordance herewith.
It is hereby specifically provided that no part of the Trust shall ever revert to the Company or in any way inure to its benefit. The Trust is, nevertheless, entirely voluntary on the part of the Company which may change, suspend, or discontinue any future payments at any time, or, from time to time, as the Board of Directors of the Company may determine. * * *
No participant hereunder shall have any vested interest in his Trust Share, nor shall a participant have any right to receive any part of his Trust share until distribution of his said Trust Share shall have been made to him by the Trustees acting under the provisions herein contained.
Distribution was to be made to each participant upon retirement at the age of 65 years. *247 In the event petitioner did not consider it for the participant's best interest to retire at the age of 65, distribution could, in the sole discretion of the trustees, either be made at the age of 65 or deferred. In the event of illness, accident, disability, or any other cause, in the discretion of the trustees and upon presentation to them by the participant of evidence of financial need, the trustees could pay such participant a portion of his trust share.
In the event that any participant hereunder ceases to be an employee of the Company prior to having attained the age of sixty-five (65) years, that portion of his trust share which has been deposited to his account under the Plan as an award for past services (which shall be known as the "Past Service Account") may be distributed to him by the Trustees in their sole discretion at any time after the severance of the participant from his employment with the Company. The Trustees may, in their discretion, after a participant leaves the employment of the Company deliver to such participant that portion of his trust share which has been deposited to his account under the Plan to encourage continued future service (which said portion*248 shall be known as the Continued Future Service Account) if they deem it for the best interests of the Company, having in mind *702 that the purposes of this part of the trust is to encourage a continued long service; provided, however, that the Trustees shall not make distribution out of the "Continued Future Service Account", for a period of three years after the participant has severed his employment with the Company, or until he has attained the age of sixty-five years, whichever event is the earlier. In the event that the Trustees, in their discretion, determine that any distribution shall be made to such a participating employee who is leaving the employ of the Company, they shall require such participant to execute an agreement with the Company that in consideration of the benefits payable to him he will not in anywise engage himself or accept employment from any person, firm or corporation located within the continental United States engaged in what the Trustees believe to be a competitive business for a period of five years from the severance of his employment with the Company. In the event that complete distribution is not made to a participant who ceases to be an *249 employee of the Company, that portion of his Trust Share which is not distributed to him shall be divided ratably among such employees who are then participants in this Trust, and the amount so distributable to each participant will be added to his Continued Future Service Account.
In the event of the death of a participant before reaching 65, or before complete distribution of his trust share, the trust share was distributable to such beneficiaries as he should designate. In the event of the termination of the trust, distribution was to be made to each participant of his share in such manner and over such period of time not to exceed 15 years as the trustees in their discretion determined to be for his best interests. The petitioner had the right at any time to alter the trust agreement, provided:
that no such action of the Company shall eliminate or impair any of the rights or benefits of any participant or to their respective Trust Shares, nor shall any such action operate to vest in the Company any right, title, interest, or claim to or against any part of the Trust Estate.
The purpose of the establishment of the trust was:
maintaining a policy of sharing the profits of the*250 Company with its managerial employees, who, in the opinion of the Board of Directors, have been a distinct benefit to the Company, its stockholders and its employees, and to develop and retain in service executives of ability, and to afford an incentive to enterprising employees who have not yet attained managerial status.
The special committee had, prior to execution of the trust agreement, determined which employees in Exhibit B were to receive a cash bonus and the amount thereof and also which were to become participants in the trust and the amount to be allocated to "Past Service" and "Future Service" accounts. In making such determination the special committee considered the ability of each employee, his particular use to the business, his loyalty to petitioner, his efforts and accomplishments during the period of his employment, and the compensation required if he were to be replaced. As to the 17 trust participants, the committee also considered their financial obligations and need for cash. Pursuant to the determination of the special committee, $ 133,175 was distributed in amounts of less than $ 3,000 to 177, and in amounts of *703 $ 3,000 or more to 9 of the 197 *251 employees on Exhibit B, and $ 173,500 was paid to the corporate trustee on December 24, 1941, for allocation to the accounts of the trust participants. The $ 133,175 was allowed as a business expense deduction by the Commissioner. The deduction of the $ 173,500 was disallowed. The participants in the trust, the corporate shares owned by each, the basic salary, commission, and bonus paid in cash, the trust shares, and total cash and trust shares for 1941, are as follows:
| Salary, commission, | |||
| and bonus paid | |||
| Corporate | |||
| shares | |||
| 1940 | 1941 | ||
| Clifford J. Baxter | 50 | $ 12,189.40 | 1 $ 22,589.11 |
| Woodbridge Bissell | 1,050 | 9,854.00 | 11,740.00 |
| Frederick L. Chapman | 700 | 11,834.00 | 13,280.00 |
| George M. Class | 45 | 11,960.00 | 15,780.00 |
| Eugene A. Coombs | 675 | 5,859.00 | 8,480.00 |
| George P. Extrom | 400 | 5,359.00 | 6,500.00 |
| Louis E. Godfriaux | 5,946.00 | 6,750.00 | |
| Robert D. Heflin | 800 | 8,281.12 | 1 22,122.91 |
| Hugh J. Homewood | 150 | 6,829.00 | 7,540.00 |
| George H. Johnson | 27,750 | 26,468.00 | 18,850.00 |
| H. Stanley Johnson, Jr | 27,750 | 10,868.00 | 13,310.00 |
| Freas M. Long | 3,000 | 18,734.00 | 18,980.00 |
| Alfred B. Morey | 600 | 21,651.00 | 16,080.00 |
| John H. Nebel | 300 | 8,400.33 | 1 15,504.74 |
| Werner I. Senger | 8,734.00 | 1 6,980.00 | |
| Claude K. Swafford | 1,050 | 13,156.00 | 12,280.00 |
| George E. Thomas | 10,854.91 | 1 20,843.67 | |
| 196,977.76 | 237,610.43 |
| $ 173,500 allocated to: | |||
| 1941 total | |||
| cash and | |||
| Past | Future | trust | |
| service | service | share | |
| account | account | ||
| Clifford J. Baxter | $ 2,500 | $ 2,000 | $ 27,089.11 |
| Woodbridge Bissell | 5,000 | 5,500 | 22,240.00 |
| Frederick L. Chapman | 6,500 | 6,500 | 26,280.00 |
| George M. Class | 4,000 | 6,500 | 26,280.00 |
| Eugene A. Coombs | 4,000 | 4,000 | 16,480.00 |
| George P. Extrom | 5,000 | 4,000 | 15,500.00 |
| Louis E. Godfriaux | 2,500 | 2,500 | 11,750.00 |
| Robert D. Heflin | 1,500 | 1,500 | 25,122.91 |
| Hugh J. Homewood | 5,000 | 4,000 | 16,540.00 |
| George H. Johnson | 12,500 | 9,500 | 40,850.00 |
| H. Stanley Johnson, Jr | 8,500 | 7,500 | 29,310.00 |
| Freas M. Long | 1,500 | 7,500 | 27,980.00 |
| Alfred B. Morey | 10,500 | 8,500 | 35,080.00 |
| John H. Nebel | 1,500 | 1,500 | 18,504.74 |
| Werner I. Senger | 9,500 | 5,500 | 21,980.00 |
| Claude K. Swafford | 7,500 | 6,500 | 26,280.00 |
| George E. Thomas | 1,500 | 1,500 | 23,843.67 |
| 89,000 | 84,500 | 411,110.43 |
Of the employees not participating in the trust, 16 owned 30,666 corporate shares and received cash bonuses of $ 13,125. The chairman of the board of directors and president until 1940 was in this group. He owned 27,786 corporate shares and received no cash bonus. *253 Of this group, one owning 10 corporate shares was paid a cash bonus of $ 1,200; another, owning 900 shares, was paid a cash bonus of $ 500, and another, owning 150 shares, was paid no cash bonus. Most of the corporate shares owned by petitioner's officers and employees were acquired by them under an employees' profit-sharing plan inaugurated in 1923 or 1924, at which time Hobart S. Johnson and his three brothers donates shares to be distributed under such plan. Since 1915 petitioner has pursued a policy of sharing its profits with its employees.
The average number of employees, total pay roll, and total sales, were as follows:
| Employees | Pay roll | Sales | |
| 1938 | 658 | $ 1,151,191.86 | $ 2,658,242 |
| 1939 | 920 | 1,677,183.35 | 3,824,892 |
| 1940 | 1,377 | 2,483,352.98 | 7,380,412 |
| 1941 | 2,581 | 5,149,894.70 | 17,416,863 |
| 1942 | 3,054 | 8,231,871.52 | 30,538,608 |
*704 From 1938 to 1942 the number of salaried employees was approximately 197. On December 31, 1940, the petitioner, at a cost of $ 491,630.99, had constructed emergency facilities for manufacturing war materials. During 1941 net additions cost $ 959,679.77, so that at the end of 1941 emergency facilities had cost $ 1,451,310.76. *254 During this expansion of facilities, sales, and production there was no increase in the number of executive employees. During the latter part of 1939 and in 1940 petitioner lost 4 of its important executives, 2 by death. This increased the responsibility and work of the remaining executives.
Hobart S. Johnson was one of the four sons of John A. Johnson, founder of the business. He was president until 1940.
William H. Spohn became attorney for petitioner about 1925. He owns some of petitioner's shares and is a director. He was familiar with the business, the officers, employees, and labor problems, and with the industry in general.
George H. Johnson has been connected with petitioner since 1918. He worked through every department, operated all types of machine tools, and, after becoming vice president, represented petitioner abroad in various activities. He became vice president and director in 1929 and president in 1940. For a time he was director of the tool division of the War Production Board and now is a consultant to that Board.
H. Stanley Johnson, Jr., is a vice president, has been with petitioner since 1923, and has been actively engaged in the management of the business*255 since 1937 or 1938.
Clifford J. Baxter is a district sales manager and has been in the employ of petitioner since 1918.
Woodbridge Bissell is production manager and has been in petitioner's employ since 1929.
Frederick L. Chapman is sales manager and has been with petitioner since 1929.
George M. Class is a vice president and chief engineer.
Eugene A. Coombs is assistant sales manager and has been in petitioner's employ since 1925.
George P. Extrom has been with petitioner since 1917 and now is assistant secretary, in charge of tax problems and the statistical department.
Louis E. Godfriaux has been with petitioner since 1915 as an inventor and designing engineer.
Robert D. Heflin is a district sales manager and has been with the petitioner since 1911.
Hugh J. Homewood was treasurer. He died in 1943.
Freas M. Long is director of foreign sales and has been with petitioner since 1906.
*705 Alfred B. Morey, with petitioner since 1813, became a vice president in 1940.
John H. Nebel, a district sales manager, has been with petitioner since 1899.
Werner I. Senger is chief research engineer, and is working on electronics and the development of balancing machines.
Claude K. Swafford*256 is a vice president and works manager, and has been with petitioner since 1913.
George E. Thomas has been with petitioner since 1916 and is a sales manager.
The 17 officers and employees, participants in the trust fund, were all key employees. They were essential to the business, and it would have been difficult or impossible to replace them with other men of ability and experience.
Wage employees were not included as participants in the trust fund and received no cash bonus. This was because they had collective bargaining and their wages have been substantially increased.
In addition to the $ 217,534 received from petitioner in 1941 and 1942, the corporate trustee received in 1942 $ 2,238.51 interest and $ 36.56 on the sale of some United States Treasury notes. In 1942 compensation of $ 269.68 was paid to the corporate trustee. At the end of 1942 the corporate trustee held $ 150,000 United States savings bonds, series G, purchased in 1941 and 1942, $ 25,000 United States Treasury notes purchased in 1942, and $ 44,539.39 cash on deposit, or a total trust fund of $ 219,539.39.
The $ 173,500 paid in 1941 by petitioner to the corporate trustee of the executive employees' retirement*257 fund, in addition to the amount of salary, commission, and bonus paid in cash in 1941 to the 17 participants of the retirement fund, constituted reasonable compensation for services actually rendered.
In 1942 the petitioner paid a capital stock tax of $ 137,500.
OPINION.
The Commissioner disallowed a deduction in 1941 of the $ 173,500 paid by the taxpayer corporation to the trustee of its newly established "Executive Employees' Retirement Trust." He held 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 claims the deduction under section 23 (a) (1) (A), providing for the allowance as deduction of ordinary and necessary *706 business expenses paid in the taxable year, including a reasonable allowance for salaries or other compensation for personal services actually rendered. It argues that section 23 (p) is not in point and therefore there is no occasion to consider whether*258 the conditions of that section have been met. The Commissioner treats section 23 (p) as a limitation upon section 23 (a) and argues that, since the $ 173,500 was paid into the trust for the future benefit of employees, it is deductible only if the trust is exempt under section 165, and that it is not exempt principally because it exists only for the benefit of a small number of the employees, and these, except three, are shareholders. The Commissioner also contends that the evidence does not show that the amounts paid, if to be considered as compensation for services, are reasonable.
No deduction may be allowed of amounts which have merely been entered by an employer in a reserve account for pensions or profit-sharing and have not been completely transferred by the employer to a trust beyond the possibility of recapture. Wilcox Investment Co., 3 T.C. 458">3 T. C. 458; Oxford Institute, 33 B. T. A. 1136; Caxton Printers, Ltd., 27 B. T. A. 1110; Merrill Trust Co., 21 B. T. A. 1409. The amount here in question is, however, not merely the subject of an accounting reserve, *259 but was in the taxable year actually paid to a trust under terms which required that it be held for the employees and which thoroughly prevented its ever going back to the employer. 1Section 23 (p) is not a specific narrowing or limitation of the deduction, under section 23 (a), of a reasonable allowance for salaries and other compensation for services actually rendered. While section 23 (p) need not be classified as either narrowing or broadening section 23 (a), we have no hesitation in saying that, if a relation were necessary, it is that 23 (p) broadens or supplements rather than narrows section 23 (a). 2 In Phillips H. Lord, 1 T. C. 286, the Court said:
Under section 23 (a) of the Revenue Act of 1936 a taxpayer is entitled to deduct from gross income "All the ordinary and necessary 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." Section 23 (p) permits the deduction from gross income of an additional amount paid to a pension trust and provides that such amounts shall be "in addition to the contributions*260 to such trust during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section." The provision of this subdivision for additional allowances is not apposite in this case.
It was then held that the entire $ 14,769 which was paid by the taxpayer-employer to the pension trust was a deduction under section 23 (a).
*707 We have no doubt that the amount of $ 173,500 contributed by the taxpayer in the instant case was paid by it in the taxable year for services of its employees, and the question which is thus presented is whether that amount is shown by the evidence to have been an aggregate of reasonable compensation paid for the personal*261 services of the employees for whom it was placed in trust. To prove that the amount was paid for personal services, and that the allotment to each of the employees was reasonable compensation to him, the taxpayer introduced the testimony of qualified witnesses who not only expressed their opinions as to the reasonableness of the compensation, but also described the services which the several employees performed. While it appears that 14 of the 17 employees were shareholders of the corporation, a fact which might infect the question of reasonableness of amounts paid to them as compensation for services and give such amounts the character of artificial distributions of dividends, the evidence establishes that there is no ground for a suspicion that the contribution of the corporation to the trust fund was a method of disguising a dividend distribution to the individual participants who were shareholders. There was no relation between the amount of the contribution allotted to each employee and the amount of his stock holdings. The ratio of the apportioned contribution to sales was not such as to indicate that instead of being related to services performed by the employees it was*262 a means of distributing profits among the owners of the business.
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). Since also it is only as an incident of a claim for deduction under subsection (p) that a question arises whether the trust is itself exempt from tax under section 165, the applicability of that section to the instant trust is not within the scope of the true issues in the present proceeding and should not be considered.
The Commissioner concedes that the taxpayer is entitled to an additional deduction for capital stock taxes of $ 60,673.75, making a total correct deduction of $ 137,500. To the extent that this additional deduction results in a different*263 deficiency or a determination of overpayment, the taxpayer is entitled thereto, and the computation under Rule 50 will take it into account. This Court has no jurisdiction to determine an overassessment, if one exists, and can go no further than to determine a deficiency or overpayment. Hence, *708 the petitioner's request for a determination of overassessment may not be complied with. If the petitioner's tax liability involves an overassessment the Commissioner will no doubt give it proper treatment in the final computation.
Decision will be entered under Rule 50.
Footnotes
1. Received no cash bonus.↩
1. The history and rationale of the statutory deduction relating to amounts set aside for pensions and paid to pension trusts has been fully set forth in Mertens, Law of Federal Income Taxation, vol. 4, paras. 25.69, 25.70↩
2. This was, for later years, changed by the Revenue Act of 1942, section 162 (b).↩