*2193 1. An amount credited by a taxpayer to a pension fund set up by it for the benefit of its employees may not be deducted as an ordinary and necessary business expense in the absence of evidence establishing that an enforceable trust was created.
2. In determining whether such a trust was created, the fact that the taxpayer, experienced in trust matters, deliberately refrained from making a trust agreement or declaration can not be casually regarded.
3. Testimony of a trust officer of the taxpayer that he understood that other officers contemplated the pension fund to be permanent and irrevocable and that they did not feel that taxpayer could take back the principal and put it in other funds. does not warrant a conclusion that the fund was permanent and irrevocable and constituted a trust fund.
*1409 The respondent determined a deficiency of $4,104.21 in petitioner's income tax for 1923. After withdrawing other issues, petitioner contests "the failure of the Commissioner to allow as a deduction from gross income for the year 1923 the*2194 sum of $5,000 paid by the petitioner into an employees' pension fund."
FINDINGS OF FACT.
The petitioner is a Maine corporation engaged in the general banking and trust business. It maintains a trust department and its trust accounts are kept separately from its general banking accounts.
*1410 Before 1921 it paid percentage bonuses to its officers and employees. In 1921 it discontinued such bonuses and established the "pension fund" here in question, the income of which was to be used to take care of the retired and incapacitated employees. It also established group insurance and a specified rate on the savings accounts of officers and employees.
The idea of the "pension fund" was formulated and approved by the officers, directors, and executive committee. No formal trust instrument was drafted or executed. The first appropriation is covered by the following vote, at a meeting on November 4, 1921, of the executive committee "Voted to charge to undivided profits account $5,000 to be invested by the trust department pension fund for officers and employees." On February 28, 1922, the executive committee "Voted to chargt $5,000 to undivided profits account and credit*2195 same to the employees' pension fund account." And on July 6, 1923, the committee "Voted to charge undivided profits account $5,000 and credit this amount to Merrill Trust Company pension fund." Book entries were made to transfer such amounts to the accounts of the trust department and they were invested by the trust department in securities. No subsequent appropriations were made to the "fund." Income has been added to it and disbursements have been made from such income to employees on the retired list.
The petitioner did not include the income of the fund or the disbursements in its corporate tax return. No return was made by anyone as fiduciary or taxpayer in respect of the fund. The petitioner deducted the $5,000 appropriated to the fund as an ordinary and necessary business expense and the Commissioner disallowed the deduction.
OPINION.
STERNHAGEN: From an examination of numerous cases already decided, from , through , affirming *2196 , it is apparent that a reserve set up by a taxpayer to meet future demands is not deductible as a business expense. Cf. . While, upon detailed evidence establishing an enforceable trust, it has been held that irrecoverable payments thereto were, under the circumstances, deductible, ; ; , there is no reason in the present record to say that a trust was created. The petitioner, with all of its experience in trust matters, deliberately refrained from making a trust agreement or declaration. This omission can not be casually regarded, as by counsel's statement that *1411 "unfortunately perhaps for the purpose of the argument no formal trust certificate was ever made." In the absence of such instrument or other evidence equally secure, the petitioner could resist any demands to enforce a trust or to account. The vote of the executive committee in making the three appropriations was merely to shift accounts by charging one and*2197 crediting the other. Both accounts were its own and subject to its uncontrolled disposition. To constitute a trust would require more than to label the account a pension fund.
Some attempt was made to prove a permanence and irrevocability of the fund; but it went only so far as the statement of the trust officer, who apparently had nothing to do with setting it up, that he understood that the officers contemplated the fund to be permanent and irrevocable and that he did not understand that the officers felt that petitioner could take back the principal of the fund and put it in the banking funds. This witness' understanding of this feeling and contemplation adds nothing to the facts to warrant the conclusion that a trust existed.
The respondent correctly disallowed the deduction of the $5,000.
Reviewed by the Board.
Judgment will be entered for the respondent.
SMITH, dissenting: The petitioner is a trust company under the laws of the State of Maine and is entitled to receive trust funds in its capacity as such. In 1923 it appropriated out of its banking funds $5,000 to be added to its pension fund, which was a trust fund held by the trust department. *2198 Such funds are entirely segregated from the banking funds. The vice president of the petitioner testified in this proceeding that all trust funds handled by the trust department were kept absolutely separate from the banking funds. That such funds did not constitute a part of the capital employed in banking is conclusively shown by Fidelity & Deposit Co. of Maryland v. United States,259 U.S. 296">259 U.S. 296.
The prevailing opinion holds that "there is no reason in the present record to say that a trust was created." The vice president of the petitioner, its principal witness, was asked:
Q. Was it contemplated at the time by the officers [of the petitioner], at the time the fund was established that it should be a permanent and irrevocable trust?
A. It was to be a permanent trust.It is also stated in the prevailing opinion that "The petitioner, with all of its experience in trust matters, deliberately refrained from making a trust agreement or declaration." There is no evidence *1412 in the record to support such a statement. The evidence all goes to show that the petitioner acted in good faith in setting up the trust fund. In my opinion it is immaterial*2199 that there was no written declaration of trust. As was stated by the Supreme Court in :
It needs no particular from of words to create a trust, so there be reasonable certainty as to the property, the objects, and the beneficiaries, . * * *
No question being raised as to the right of the petitioner to deduct the amount set aside to the trust fund on the ground that it constituted unreasonable compensation for its employees, I am of the opinion that the amount is a legal deduction from gross income under the decisions of the Board in ; ; and .