*230 Decision will be entered for the respondent.
Capital Expenditure or Expense. -- An individual 82 years old transferred his business to a corporation in exchange for all of its stock and its agreement to employ him and after his death to pay a pension to his widow for life. Held, payments made in that same year to the widow after his death are not shown to have been ordinary and necessary expenses of the corporation paid or incurred in carrying on its business.
*569 The Commissioner determined a deficiency of $ 214.23 in the income tax of the petitioner for the taxable year ended December 31, 1944. One of the adjustments which he made was to disallow a deduction of $ 875 representing a so-called*231 pension paid to Ida Pfeifer, widow of Frederick Pfeifer, former president of the petitioner. That action of the Commissioner is assigned as error.
*570 FINDINGS OF FACT.
The petitioner filed its corporate income tax return for 1944 with the collector of internal revenue for the second district of New York.
Frederick Pfeifer (hereinafter called Pfeifer) was 82 or 83 years old in 1944. He had been engaged for many years representing hardware manufacturers in the New York area. He was well and favorably known throughout the hardware industry. He was active in the business and in good health in the spring of 1944.
His attorney suggested to him in the spring of 1944 that he should incorporate his business in order to protect his two sons, who were then active in the business with him, and to provide a pension for his wife after his death. The suggested plan was carried out.
The petitioner was organized in April, 1944. Its outstanding stock consisted of 100 shares of no par value common stock.
Pfeifer wrote to the petitioner on April 12, 1944, offering to sell his business to it in consideration of the issuance to him of all of its stock, "with the express understanding and condition, *232 and as a further consideration, that you will enter into an agreement with me, by which I shall be continued as President of the said Corporation, and that a contract is entered into between the corporation, that in the event of my death, my widow, Mrs. Ida Pfeifer, of Garden City, New York, shall receive a pension of the sum of three hundred and fifty ($ 350) dollars per month, as long as she may live."
The petitioner accepted Pfeifer's offer and his business was transferred to the petitioner in exchange for all of its capital stock on or about April 13.
Pfeifer drew his last will and testament on April 13, 1944, leaving one-half of the stock of the petitioner to each of his sons and leaving his residuary estate to his wife.
The board of directors of the petitioner, consisting of Pfeifer and his two sons, at its first meeting, on April 13, 1944, fixed Pfeifer's annual salary at $ 12,500 and the salary of each of his sons at $ 7,500.
Pfeifer died in October, 1944, survived by his two sons and his widow, Ida.
The petitioner, after the death of Pfeifer, paid $ 875 to Ida at the rate of $ 350 a month in accordance with its agreement.
The petitioner on its return for 1944 showed net income*233 of $ 1,841.16 after claiming a deduction of $ 875 representing the amount paid to Ida. The Commissioner, in determining the deficiency, disallowed that deduction. That amount did not represent an ordinary and necessary expense of the business of the petitioner.
*571 OPINION.
Counsel for the petitioner, who advised Pfeifer to carry out the plan outlined in the findings of fact, contends that the payments of $ 350 a month to the widow of Pfeifer are deductible under section 23 (a) (1) (A) as ordinary and necessary expenses incurred during the taxable year in carrying on its business. He cites . That case is not in point and no case supporting the petitioner's contention has come to our attention. The payments to the widow were not ordinary and necessary expenses of the business of the petitioner. They may have been a part of the cost of the business purchased by the petitioner from Pfeifer, but, if so, they would not be deductible as ordinary and necessary expenses. Cf. , affirming ;*234 , affirming ; .
This Court said in , a case involving somewhat similar payments:
* * * in the absence of a contract liability, an established pension policy, or a showing that such payments were for past compensation and were reasonable in amount, the payments may not be deducted under section 23 (a).
Here there was no established pension policy and no showing that the payments were for past compensation and were reasonable in amount. They were paid pursuant to a contract, but the contract referred to in the above quotation is one for pension payments arising out of an employment contract, in no way related to any contract for the purchase of property, entered into at arm's length in order to obtain the services of a valuable employee. It is apparent from the findings of fact that the payments to the widow were not pursuant to a contract entered into*235 at arm's length to retain the services of a valuable employee. Pfeifer was still active in the business and he was well and favorably known in that business, but he was 82 or 83 years old, he was in effect dealing with himself, the value of his services is not shown, it is not shown that they exceeded his compensation, and the age of his wife is not shown. The determination of the Commissioner was correct.
Decision will be entered for the respondent.