*81 Decision will be entered under Rule 50.
Pursuant to a contract executed by petitioner and the union representing most of its employees, negotiated as to its important provisions by representatives of the major steel companies and of the United Steelworkers Union, petitioner, which kept its books on an accrual basis of accounting, agreed to make certain payments to a fund administered by a trust which would provide supplemental unemployment-benefit payments to its employees. A part of the payments to the trust was to be made immediately in cash and a part was to be made at some future time as the financial needs of the fund required. The amount of all of the payments to be made was determined by events occurring during the taxable years. The contract in existence during the taxable years provided that any ultimate excess of the noncash liabilities to the trust over the payouts to the employees by the trust should be used for other benefits to the employees. The amounts of these noncash liabilities were credited by petitioner to an account called contingent liability. They were accrued by petitioner as business expenses and deducted by it in its returns for the years in which*82 such credits were made. While it is reasonably certain that these amounts thus credited to this account during the taxable years would be ultimately paid to petitioner's employees pursuant to the plan outlined by the contract, there was uncertainty during the taxable years with regard to the specific identity of the ultimate recipients of the benefits to be paid by the petitioner trust and the time of such payments. Held, that petitioner is entitled to accrue and deduct these amounts as business expenses incurred during the taxable years.
*83 *765 Respondent determined deficiencies in petitioner's income taxes for petitioner's fiscal years ending December 29, 1962, and December 28, 1963, in the respective amounts of $ 355,238.53 and $ 99,242.06, of which the respective sums of $ 321,084.40 and $ 63,646.96 are in dispute. The only issue for decision is whether the unpaid portion of petitioner's obligation at the end of fiscal years 1962 and 1963 to make contributions to an employee's trust established under a steel industry supplemental unemployment-benefit plan is then deductible as a business expense under the accrual method of tax accounting.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation, and the exhibits attached thereto, are incorporated herein by this reference.
Petitioner Lukens Steel Co. (hereinafter called petitioner or Lukens) was incorporated in 1917 under the laws of the Commonwealth of Pennsylvania. Its principal place of business, and sole production facility, is at Coatesville, Pa.Lukens, as a component company*84 in the basic steel industry, was and is engaged in the manufacture, fabrication, and sale of heavy steel plates and related steel products for heavy industrial use. It is a publicly held company whose shares are listed on the New York Stock Exchange.
Lukens reports its Federal income tax liability under an accrual method of accounting and files its returns on the basis of a 52-53-week fiscal year ending on the Saturday nearest December 31. Its fiscal year has 13 accounting periods of 4 weeks each (hereinafter called accounting periods, and sometimes accounting months, or months). The same 52-53-week fiscal year, with 13 accounting periods, was incorporated into the supplemental unemployment-benefit plans entered into by Lukens which are described below.
The United Steelworkers of America (hereinafter sometimes called steelworkers union) is an international labor organization with over 1 million individual members who are organized into about 3,000 local unions. The Steelworkers Union functions principally in the basic steel industry in which it represents in collective bargaining workers in plants accounting for more than 90 percent of total national steel ingot capacity. It *85 also functions in certain related industries including *766 steel processsing and fabricating, aluminum, copper, iron mining and ore shipping, containers, certain other transportation, and miscellaneous manufacturing.
During the period 1956-63, Lukens had an average of 5,012 employees, of whom approximately 3,500 were represented in collective bargaining by the Steelworkers Union and its local unions Nos. 1165 and 2295.
In 1956, labor contract negotiations in the steel industry were conducted on several different levels. In the first instance, a group of 10 or 11 major steel companies, being among the largest in the industry, bargained jointly with the Steelworkers Union on major economic issues. These joint negotiations were actually conducted on behalf of the steel companies by a four-man negotiating team, composed of two representatives from the United States Steel Corp. and one each from Bethlehem Steel and Republic Steel, with the understanding that the economic settlement agreed upon would be applied uniformly among the group of 10 or 11 participating companies. At the same time, the steel companies bargained individually with the Steelworkers Union on local issues and*86 on problems peculiar to their particular company.
Among the Steelworkers Union's 1956 contract demands was a proposal for the establishment of a supplemental unemployment-benefit program. This proposal was one of the economic issues on which the major steel companies bargained jointly with the Steelworkers Union in 1956. As a result of the joint negotiations, each of the major steel companies agreed to establish a supplemental unemployment-benefit plan (hereinafter sometimes referred to as the SUB plan). The terms of the SUB plans adopted by each of the major producers of steel participating in the joint negotiations were virtually identical. After agreement on the terms of the SUB plan had been reached in the joint negotiations, the remaining companies in the basic steel industry whose employees were represented by the Steelworkers Union also adopted SUB plans on substantially identical terms. Thus, separate, virtually identical SUB plans were placed in operation in practically all companies in the industry.
Lukens, being one of the smaller companies in the basic steel industry, did not participate in the joint negotiations involving the major producers of steel. After the *87 pattern of the "economic package" had been established for the industry by the joint negotiations, including the terms of the SUB plan, the Steelworkers Union presented the entire package to Lukens as its proposal for settlement. Lukens had no practical alternative but to accept; and it did accept the entire economic package, including the SUB plan, negotiated by the major companies.
By contract dated July 29, 1956, Lukens agreed with the Steelworkers Union to adopt a SUB plan (in the form adopted by the *767 major producers of steel) effective upon execution and to continue in effect until July 31, 1959.
The purpose of the SUB plan was to ameliorate the effects of cyclical unemployment in the steel industry by supplementing the benefits available to laid-off covered employees under State-system unemployment-benefit programs. The objective, as envisioned in 1956, was to provide laid-off employees (with 2 or more years service) with 65 percent of their after tax take-home pay, taking into account State benefits, for periods up to 52 weeks.
The principal provisions of the 1956 SUB Plan, as agreed to by Lukens were as follows:
(a) Lukens agreed (for the 3-year term of the SUB plan*88 agreement) to furnish the funds, in an amount computed on the basis of monthly labor hours, to provide "eligible employees" with cash benefits during periods of total and partial unemployment resulting from layoffs. An "eligible employee" was, generally speaking an employee who is laid off before he quits, strikes, or is discharged, and who had continuously been employed for 2 years prior to such layoff. An employee who was laid off was required to report in person weekly at a time and place designated by Lukens and must have received State unemployment insurance or be able to work.
(b) Lukens agreed to establish a trust fund (hereinafter referred to as SUB Plan Trust or Trust), with a corporate trustee for the payment of unemployment benefits provided under the SUB plan. Its agreed contribution was to be made to the SUB Plan Trust, which in turn was to be the exclusive source of benefit payments conferred under the SUB plan. The provisions of the 1956 SUB plan with regard to the SUB Plan Trust were similar to those of the 1962 SUB plan relating to the trust called for by that document which are set forth verbatim later in these findings of fact.
(c) The weekly benefits payable*89 to employees on layoff were fixed at 65 percent of their after-tax straight-time weekly wage (reduced by the amount of any State unemployment benefits to which they were entitled) subject, however, to prescribed maximums. The "maximum weekly benefit" was set at $ 25 (plus $ 2 for each of not more than four dependents) for weeks in which State unemployment benefits were received; and $ 47.50 (plus $ 2 for each of not more than four dependents) for weeks after State benefits were discontinued. In addition, provision was made for the reduction of weekly benefits by a percentage factor where the total finances of the SUB plan dropped below prescribed levels. 1 The duration for which benefits would be continued for any particular employee on layoff was dependent upon the number of *768 his "credit units" (earned at prescribed rates during periods when working), but could in no event exceed 52 weeks.
(d) Lukens' monthly financial obligation under the 1956 SUB Plan (during the term of the SUB plan agreement) consisted of both a current cash obligation and a contingent liability. With respect to the former, Lukens was obligated to pay monthly to the trust, in cash, 3 cents for each*90 hour worked by "eligible employees" during the month subject, however, to limitations designed to prevent the total finances of the SUB plan from exceeding prescribed maximum levels (hereinafter sometimes referred to as maximum financing). 2*92 Maximum financing, while expressed as a formula in the SUB plan itself, was set at approximately $ 210 per employee covered by the plan. Thus the maximum financing of the SUB Plan Trust established by Lukens would be approximately $ 735,000 (3500 X $ 210). To the extent that the cash contributions to the trust did not raise the total finances of the SUB plan up to the level of maximum financing Lukens was also subject to the above-mentioned contingent liability in an amount not to exceed an additional 2 cents for each hour worked by "eligible employees." 3 Amounts credited to the contingent liability account were payable to the SUB Plan Trust at such time, and only in the event, that the trust assets were insufficient to permit payment of unemployment benefits. The contingent liability was cancelable in part during the term of the SUB plan agreement under the following circumstance: if at any time when monthly contributions to the SUB plan*91 were required to be calculated the total finances of the SUB plan exceeded maximum financing then no contribution was to be made to the SUB plan and the contingent liability credited to the SUB plan at that time was to be decreased to the extent that total finances exceeded maximum financing. Thus, for example, if the funds of the SUB Plan Trust exceeded the amount of $ 735,000 (our hypothetical maximum financing) by $ 100,000 at any time, the contingent liability of Lukens credited to *769 the SUB plan was to be decreased by $ 100,000. Upon termination of the SUB plan agreement (on July 31, 1959) any remaining contingent liability for the payment of money to the trust in amounts not needed for "payouts" of unemployment benefits was then cancelable in full, but all assets in the trust resulting from cash contributions were to be used until exhaustion to provide supplementary unemployment benefits and could in no event be returned to Lukens.
To implement the SUB plan, and in accordance with its terms, Lukens, on March 12, 1957, established with the Tradesman Bank & Trust Co., a Pennsylvania banking corporation (which now bears the name Provident National Bank), as trustee, a trust denominated the "Lukens Steel Company Supplemental Unemployment Benefit Plan Trust" -- the SUB Plan Trust.
By Internal Revenue Service letter issued on July 25, 1958, the SUB Plan Trust was ruled to be an organization of the type described in section 501(c)(9), I.R.C. 1954, and as such to be *93 exempt from Federal income taxes.
On July 31, 1959, the SUB plan agreement expired and, in accordance with its terms, the contingent liability previously incurred by Lukens was extinguished. However, as a result of collective-bargaining negotiations conducted during 1959 and 1960, the SUB plan agreement was extended without change in terms to December 31, 1962, and the balance of the contingent liability which had been canceled was restored as a SUB plan asset.
During the period commencing with the establishment of the SUB plan and ending June 30, 1962, Lukens made current cash contributions to the SUB Plan Trust in the following amounts in respect of the years indicated:
| Fiscal year | |
| 1956 | $ 98,970 |
| 1957 | 239,499 |
| 1958 | 196,140 |
| 1959 | 70,871 |
| 1960 | 73,405 |
| 1961 | 159,638 |
| 1962 | 41,353 |
The outstanding balance of Lukens' contingent liability under the SUB plan on the last day of each of its fiscal years 1956 through 1961, and on June 30, 1962, was as follows:
| Fiscal year | |
| 1956 | $ 65,980 |
| 1957 | 225,646 |
| 1958 | 356,406 |
| 1959 | 285,737 |
| 1960 | 299,717 |
| 1961 | 408,889 |
| 6/30/62 | 447,732 |
During the period commencing with the establishment of the SUB plan ending June 30, 1962, cash benefits *94 were paid to Lukens' employees *770 under the SUB plan in the following amounts in respect of the fiscal years indicated:
| Fiscal year | |
| 1956 | 0 |
| 1957 | $ 267.49 |
| 1958 | 220,123.32 |
| 1959 | 100,050.48 |
| 1960 | 228,503.81 |
| 1961 | 61,085.15 |
| 1962 (to June 30th) | 25,398.38 |
In its Federal income tax returns for fiscal years 1956 through 1961, Lukens claimed, and was allowed, deductions in respect of cash contributions paid or payable to the SUB Plan Trust. Lukens did not claim deductions in its returns for fiscal 1956 through 1961 in respect of its unpaid contingent liability under the SUB plan. During fiscal years 1956 through 1961, Lukens' unpaid contingent liability under the SUB Plan was carried on its books of account and published financial statements as a contingent liability.
Early in 1962, with the 1960 labor contract nearing expiration, representatives of the steel industry and the Steelworkers Union entered into collective-bargaining negotiations looking to a new labor agreement. The manner in which these negotiations were conducted was essentially the same as provided in 1956. A group of 11 major producers of steel bargained jointly with the Steelworkers Union on economic *95 issues. In contrast to the informal arrangement which existed in 1956 the four-man negotiating team was specifically authorized to represent all of the companies in the group and, at the conclusion of the negotiations, a single memorandum of agreement was executed by the 11 major steel companies and the Steelworkers Union. Lukens again did not directly participate in the joint negotiations involving the major producers of steel, but it was a member of a group of smaller companies which was permitted to have a representative at meetings in which the four-man negotiating team reported the progress of negotiations.
In the course of the 1962 negotiations, the Steelworkers Union contended that the SUB plans had proven inadequate to fulfill their objectives. The Steelworkers Union demanded an increase in the 5-cent-per-hour maximum contribution rate and abolition of the provision for cancellation of contingent liability when "maximum financing" was reached. The Union negotiators contended that the 5-cent-per-hour contribution rate had proven inadequate to supply the funds required to permit payment of the full benefits contemplated in the 1956 negotiations and the provision for cancellation*96 of contingent liability operated to deprive the SUB plan of resources which were needed to pay benefits during periods of unemployment. Also, the union negotiators contended that the heavy unemployment *771 and layoffs experienced in the steel industry in the years 1956-61 had brought about a substantial drain on SUB plan resources, and as a consequence there had been frequent reductions in benefits paid under the SUB plans.
The Union negotiators were dissatisfied with the provisions permitting cancellation of contingent liability for a second reason: during bargaining sessions with the union, the industry representatives had claimed cost credit in the economic settlement, informally referred to as bargaining credit, for the full 5-cent-per-hour maximum contribution to the SUB plan. But, since the contingent liability was cancelable, and since no obligation was incurred after "maximum financing" was reached, the actual cost to the steel companies was less than 5 cents per hour. Moreover, when the steel companies agreed in the 1959 negotiations to restore the previously canceled contingent liability they sought again to take "bargaining credit" for what the union regarded as*97 the same dollars. While the union negotiators never accepted the industry claims in this regard, they desired to eliminate any basis for such claims in the future.
The matter of the proposed noncancelable character of the contingent liability of the steel companies under a new SUB plan was discussed at considerable length during the 1962 negotiations. At the outset of the negotiations the union representatives demanded that the contributions of the steel companies to the SUB Plan Trust should be entirely in cash since they claimed that by permitting some part of the contribution to be in the form of noncash deferred obligation the union was forced to take the risk of the continued financial health of the steel companies. The final position of the negotiators for the steel companies was that the union's first two criticisms of the 1956 SUB plan's contingent liability provisions could be eliminated entirely by providing that the deferred obligation under the new SUB plan be noncancelable in any event, and that, in view of the financial position of the steel companies, the demand for all-cash payments was invalid. The union agreed to drop its demands for all-cash arrangements on *98 the condition that no obligation under the 1962 SUB plan not immediately payable in cash was to be subject to cancellation for any reason whatever. This condition was agreed to by the industry negotiators and was later implemented in drafting the 1962 SUB plan.
After a series of proposals and counterproposals the union and industry negotiators agreed to a number of revisions in the contribution, benefit, and financing provisions of the SUB plan which were designed, in large measure, to correct the defects of which the union negotiators complained. Except for these modifications, the basic format of the SUB plan remained as established in 1956. Employee eligibility requirements in the 1962 SUB plan differed only slightly from the 1956 *772 plan requirements. The provisions of the 1962 SUB plan pertinent to employee eligibility are as follows:
2. DURATION OF WEEKLY BENEFITS
Credit Units
2.0 The number of weeks for which an employee may receive Weekly Benefits depends on his number of credit units. An employee will be credited with the balance of his credit units as of June 30, 1962, under the Prior Plan, plus one-half a credit unit for each week thereafter in which he has*99 any of the following hours (credited hours):
a. Hours worked for the Company,
b. Hours not worked but for which he is paid, such as vacation hours or hours for which he received jury allowance,
c. Hours not worked and not paid for but which were lost because:
(1) He was performing his duties as a member of the Grievance Committee, or President, Vice-President, Recording Secretary, Financial Secretary and/or Treasurer of a Local of the Union which is his collective bargaining representative, or
(2) He was absent because of disability for which benefits are payable under a Workmen's Compensation or Occupational Disease law or the Company Program of Insurance Benefits.
However, an employee will not receive credit for weeks occurring when he has 52 credit units, which is the maximum number he may have.
Cancellation of Credit Units
2.1 An employee cannot receive any Weekly Benefit unless he has one or some fraction of a credit unit. If he has less than required to be cancelled as described in the next paragraph he will receive a reduced benefit in proportion to his credit unit balance.
2.2 Normally one credit unit is cancelled for each Weekly Benefit paid. However, if a Weekly Benefit*100 is reduced because of the receipt of other compensation (other than from the Company) only one-half credit unit will be cancelled for that Weekly Benefit.
2.3 If an employee wilfully falsifies, or wilfully withholds, any records or other data on which his Weekly Benefit payments are based, the Company may cancel any or all of his credit units.
3. ELIGIBILITY FOR WEEKLY BENEFITS
Requirements
3.0 In order to be eligible for a Weekly Benefit, an employee must be on a layoff (as defined in Paragraph 3.8) which occurred in a reduction in force or as a result of the permanent shutdown of a plant, department or subdivision thereof; he must have completed two years of continuous service prior to his layoff; and he must:
a. Report and apply in person in the week for which he is claiming a Weekly Benefit at a time and place designated by the Company. The place at which reporting and applying are required will be at or near the location where the employee was last employed. If such place is an unreasonable distance from the employee's residence, or if he leaves the area to seek work, the Company shall, upon request of the employee in person, grant permission to report at another Company *101 location where an adequate office for such reporting is maintained. If no such office is within reasonable distance, the Company shall, upon request of *773 the employee in person, grant permission to report and apply by mail. An employee applying for a Weekly Benefit pursuant to Paragraph 3.1 may report and apply by mail. The necessary forms and instructions for making SUB applications by mail shall be supplied by the Company to the employee at the time his request for mail reporting is granted.
b. Receive a State Unemployment Benefit for the week. However, this requirement will not apply if he fails to receive that benefit only for one or more of the following reasons:
(1) He has exhausted his state unemployment benefits.
(2) He has other compensation in an amount which disqualifies him for a state unemployment benefit.
(3) He has not had sufficient employment to be covered under the state system.
(4) He is unable to work by reason of disability. (See Paragraph 3.1.)
(5) He is participating in a federal training program. (See Paragraph 3.3.)
No employee shall receive a Weekly Benefit until he shows that he received a state unemployment benefit for the week or failed *102 to receive such benefit for a reason which does not disqualify him from receiving a Weekly Benefit. * * *
* * * *
c. Be available for work, and maintain an active registration with the state employment service. These requirements will be considered to have been met for any week for which the employee receives a state unemployment benefit.
d. Apply for, accept and not voluntarily leave employment with other employers as specified by the Company or otherwise, if the employment is considered suitable under the state system. This requirement will be considered to have been met for any week for which the employee receives a state unemployment benefit.
* * * *
Disqualification
3.4 An employee will be disqualified from receiving a Weekly Benefit if:
a. He quit, or
b. He was suspended or discharged, or
c. His unemployment resulted from a labor dispute involving any individuals covered by the Plan, or the Union which is his collective bargaining representative, whether the labor dispute occurred at any operation of the Company or elsewhere; or a labor dispute at any operation of the Company or involving any other employees of the Company which interferes with production or the ingress *103 or egress of material or product at the operation where he was employed; or a labor dispute involving transportation or utility company employees which directly interferes with production or the ingress or egress of material or product at the operation where he was employed, or
d. His unemployment was the result of a refusal by him to accept assignment to any work at the operation where he was employed or at any other operation of the Company if it is work which he would be required to accept under any applicable collective bargaining agreement.
* * * *
Ineligibility
3.7 a. An employee may not receive a Weekly Benefit for any week:
(1) For which he claims and is eligible for sickness and accident or total disability benefit (except as provided in Paragraph 3.1 above) whether it is *774 publicly or privately financed or a pension or retirement benefit financed in whole or in part by the Company, or
(2) When he is in the military service, including training encampments.
b. An employee may not receive a Weekly Benefit for any week when his layoff was the result of:
(1) Any war or hostile action of a foreign power, or
(2) Government regulations or controls over amount or kind of*104 material or product which the Company may use or sell, or
(3) Sabotage or insurrection.
c. An employee may not receive a Weekly Benefit for any week of layoff which is the result of an Act of God after the first two weeks of layoff resulting from such cause.
When an Employee is "on Layoff" for the Purposes of the Plan
3.8 For the purposes of the Plan, an employee is "on layoff" for any week in which, because of lack of work, he does not work at all for the Company.
* * * *
9.4 * * * In the case of any employee's death, no Benefit shall be payable with respect to any period following the last full week of layoff immediately preceding his death.
The principal changes in the contribution, benefit, and financing provisions of the 1962 SUB plan were as follows:
(i) Gross benefits. -- The basic unemployment benefits available under the SUB plan, both for periods of layoff and partial unemployment, were substantially increased (e.g., full weeks' benefits were based upon 24 hours of pay instead of 65 percent of straight-time hourly pay) and benefits were extended to include (a) relocation allowances for employees assigned jobs under interregional job opportunities programs, and (b) *105 certain disability benefits.
(ii) Benefit maximums. -- The weekly benefit maximums were increased by approximately 40 percent. The maximum for weeks during which the employee received benefits under the State system was increased from $ 25 (plus $ 2 for each dependent up to four) to $ 37.50 (plus $ 1.50 per dependent up to four); and the maximum for weeks after the termination of State benefits was increased from $ 47.50 (plus $ 2 per dependent up to four) to $ 60 (plus $ 1.50 per dependent up to four).
(iii) Benefit reductions. -- The benefit reduction provisions were liberalized. That is, the point at which gross-benefit reduction set in, expressed as a percentage of SUB plan assets to maximum financing -- was lowered from 75 percent of maximum financing to 35 percent.
(iv) Maximum financing. -- Maximum financing, which had been developed to produce approximately $ 210 per employee, was increased to approximately $ 250 per employee.
(v) Company contributions. -- The basic rate of company contributions *775 for all eligible Lukens employees was increased from 5 cents per hour worked to 9.5 cents per hour worked to the extent necessary to provide maximum*106 financing, except under circumstances that will be discussed below.
The contingent liability terminology of the original SUB plan was carried over to the revised SUB plan and referred to therein as "Contingent Liability" as a matter of convenient reference to the unfunded portion of the steel companies' obligation. The provisions of the 1956 SUB plan relating to cancellation of contingent liability when total finances exceeded maximum financing, and when the SUB plan agreement or SUB plan terminated, were eliminated.
Pertinent financial and administrative provisions of the 1962 SUB plan are as follows:
8. FINANCING
Trust Fund
8.0 The Company will establish a Fund for the payment of Benefits. Cash payments by the Company under the Plan will be paid into the Fund. The Trustee of the Fund shall be a corporate trustee or non-profit corporation selected by the Company. The Trustee shall hold, invest and apply the assets of the Fund in accordance with the provisions of the Plan. The assets of the Fund may be held in cash or invested by the Trustee in obligations of the United States Government or other appropriate securities approved by the Company. The reasonable fees and expenses*107 of the Trustee shall be paid from the Fund. Benefits shall be payable only from the Fund. No person shall have any interest in, or right to, the Fund or any part thereof, except as expressly provided in the Plan.
8.1 The money in the Fund may not be used for any purpose except the payment of Benefits to or in behalf of eligible employees as described in this Plan and for the Trustees' fees and expenses, or as provided in Paragraph 9.10.
Maximum Financing
8.2 The maximum financing shall be used (1) with reference to the determination of the Company's financial obligations under the Plan and (2) for purposes of determining the financial position of the Plan. The maximum financing for any month after June, 1962, shall be the lessor of:
a. The product of 12 1/2 cents and the number of Contributory Hours in the first 12 of the 14 months next preceding the first day of such month (excluding any month throughout all of which there is in progress a strike involving the Union which is not in violation of any basic labor agreement and which causes the suspension of steel producing operations of the Company), or
b. 100 times the sum of the benefits paid during the first 60 of the preceding*108 62 months divided by 60.
Total Finances and Financial Position of the Plan
8.3 The total finances of the Plan at the close of business on the last business day of a month are:
(1) The market value of the total assets in the Fund, plus
(2) The balance of Contingent Liability, before the accrual in (3), plus
*776 (3) The Monthly Obligation accrued with respect to the Contributory Hours for the month; minus
(4) Benefits and expenses accrued but not paid.
* * * *
Financial Obligations of the Company
8.6 For each month (the contribution Month) beginning with July, 1962, the sum of the cash contributions to be made to the Fund and the Contingent Liability to be added to the existing balance of Contingent Liability (such sum being herein referred to as the Monthly Obligation) shall be the lesser of (1) the sum of 9.5 cents times the Contributory Hours of all other employees covered by the Plan, or (2) the amount which when added to the total finances of the Plan as set forth in Paragraph 8.3 as of the end of the preceding month will equal maximum financing. The Monthly Obligation shall consist of Contingent Liability, except that the excess, up to a maximum of 4.5 cents times all*109 Contributory Hours for the month, of (1) 10.5 cents times the Contributory Hours for the first 12 of the 14 months preceding the Contribution Month over (2) the total finances of the Plan as set forth in Paragraph 8.3 at the end of the preceding month shall be in cash.
8.7 The Company's only obligations to make payments to the Fund are as follows:
a. The cash contributions required as the result of the calculation relating to a Contribution Month, described in Paragraph 8.6 (to be made as soon as practicable after such month), and
b. Cash contributions to the Fund, up to the balance of Contingent Liability accrued at any time. Such contributions shall not be made unless needed for the payment of Benefits, and when made shall cancel an equal amount of Contingent Liability. The balance of Contingent Liability under the Prior Plan as of June 30, 1962 shall be carried forward under the Plan.
* * * *
Termination of the Plan
9.10 Upon termination of the Plan, the assets then remaining in the Fund and the Contingent Liability shall be subject to all the applicable provisions of the Plan then in effect and shall be used until exhausted to pay Benefits to employees in the order of their*110 entitlement. The provisions with respect to the reduction of Weekly and Short Week Benefits which are set forth in Paragraph 1.5 shall not thereafter be effective. If at any time there are assets in the Fund or there is a balance of Contingent Liability and all the operations of the Company in which there are employees covered by the Plan shall be permanently shut down, arrangements for disposition of assets and Contingent Liability in a manner designed to promote the purposes of the Plan shall be made. Such arrangements shall be by agreement with the collective bargaining representatives of employees covered by the Plan.
Unlike the 1956 SUB plan where Lukens was permitted to effect an absolute saving to the extent that monthly contributions would cause the total finances of the plan to exceed maximum financing, the 1962 agreement between Lukens and the Steelworkers Union provided as follows:
*777 ARTICLE XXI -- Supplemental Unemployment Benefits Program
* * * *
E. Possible Additions to and Transfer from Total FinancesNotwithstanding the provisions of Paragraph 8.3 of the booklet, there shall be added to total finances of the Plan as Contingent Liability (in addition to*111 the contingent liability referred to in such Paragraph 8.3, for benefit purposes only, and not for contributions purposes) and subsequent transfer as required to the Financial Availability Account provided in Article XIV, SECTION 2 -- Savings and Vacation Plan, the excess of (1) the difference between the Company's maximum monthly obligation under the Plan and the amount required to raise total finances of the Plan to maximum financing (but such difference shall be limited to 4.5 cents per hour worked by employees covered by the Savings and Vacation Plan) over (2) the amount of such difference then transferred to the Financial Availability Account under the Savings and Vacation Plan. [Footnote omitted.]
ARTICLE XIV -- Vacations
* * * *
SAVINGS AND VACATION PLAN
Section 2.
* * * *
B. FinancingThe Company will establish a Financial Availability Account to be used in determining the amount of monies to be applied to provide benefits under this Plan. The Financial Availability Account will accrue at the rate of three cents for each hour worked for the Company after June 30, 1962, by each employee.
There shall be added accrual to the Financial Availability Account of amounts made *112 available in the following manner:
(1) For the month of July, 1962, and each month thereafter, if under the SUB Plan the amount required to raise total finances to maximum financing is less than the Company's maximum monthly obligation under that Plan, there shall be available for accrual an amount calculated by multiplying the total hours worked by employees covered by this Savings and Vacation Plan in such month by the lesser of (a) 4.5 cents and (b) the difference between 9.5 cents and the amount per contributory hour required to raise total finances of the SUB Plan to maximum financing.
(2) The accrued amount determined in (1) above shall in no event be in excess of the amount required to provide (a) benefits to individuals then entitled because of retirement to benefits based on their retirement units and (b) vacation benefits to employees having at least one full vacation unit as of the current or next preceding Calculation Date.
(3) Any amounts which would have been accrued to the Financial Availability Account pursuant to (1) above except for the provision of (2) above, and which were therefore added to the total finances of the SUB Plan, and which have not been used for payment*113 of benefits under that Plan, shall be accrued to the Financial Availability Account and deducted from the total finances of the SUB Plan to the extent then needed for the provision of retirement and vacation benefits.
Early in the 1962 negotiations, representatives of the steel companies and the Steelworkers Union agreed in principle that the financial resources of the SUB plan (as expressed in terms of the hourly *778 rate of contribution) should be set at a level which, based upon the unemployment experience of the United States Steel Corp. during a period extending from September 1956 through November 1961, would permit as nearly as possible payment of the intended benefits. In view of United States Steel's position as the largest producer in the basic steel industry (accounting for approximately 25 percent of total industry production) its unemployment experience during the years of prior SUB plan operations was considered by the negotiators for both the steel companies and the union as an appropriate model for formulating the new financing arrangements which would apply industry-wide.
After the foregoing understanding had been reached, the negotiators turned the problem*114 over to a group of experts on economics and statistics selected by the steel companies and the union. These experts, using the United States Steel model unemployment data, determined that the cost per hour of providing full benefits under the original 1956 benefit formula was 6.7 cents and the added cost per hour of all of the new full benefits agreed upon by the negotiators in 1962 would be 3.3 cents. The reduction in hourly cost which would accompany certain benefit reductions on the basis of the United States Steel model unemployment experience was calculated to be 0.5 cents. In the light of this analysis, the negotiators concluded that a contribution rate of 9.5 cents per hour would be required to provide the agreed upon SUB plan benefits. In determining the level of contribution which would be required to provide the SUB plan benefits and the amount of benefits which would be paid using the United States Steel model unemployment data, the experts took into account the balance of the contingent liability under the old SUB plan which the negotiators agreed was to be carried forward to the revised SUB plan in the form of "Contingent Liability."
It is inherent in the financing*115 provisions of the revised SUB plan that the plan, after a few years, will usually be financed with payments to the trust from the "Contingent Liability" account since there usually would be no assets in the Trust.
Until the happening of the circumstances under which amounts credited to the contingent liability account are to be paid into the trust, Lukens has unrestricted use of these amounts.
After agreement on the terms of the revised SUB plan had been reached in the 1962 joint negotiations involving the major producers of steel, the remaining companies in the basic steel industry whose employees were represented by the Steelworkers Union also consummated revised SUB plan agreements on substantially identical terms. Thus, the revised SUB plan agreement was adopted on an industrywide basis.
*779 After agreement on the revised SUB plan had been reached in the joint negotiations involving the major producers of steel, and contracts had been executed, the Steelworkers Union presented the agreed upon plan to Lukens as part of its proposal for settlement. Lukens had no practical alternative but to accept; and it did accept by consummating a revised SUB plan agreement with the Steelworkers*116 Union on terms substantially identical to those agreed upon in the joint negotiations. The only difference between Lukens' revised SUB plan, and that adopted by the major producers of steel is that the Lukens plan is operated on the basis of thirteen 4-week accounting periods instead of a calendar month basis.
Steel production in the United States is highly cyclical and production in the steel industry fluctuates substantially. Lukens' production fluctuates in close correlation to that of the industry as a whole. Likewise hourly employment in the steel industry fluctuates substantially; and Lukens' hourly employment fluctuates in close correlation to that of the industry as a whole.
Prior to the 1956 negotiations, Lukens furnished the Steelworkers Union with substantial data in respect of its layoff experience in prior years. During the years of operation of the 1956 SUB plan (and prior to the adoption of the revised SUB plan), Lukens maintained a record of its actual layoff experience which it regularly furnished to the Steelworkers Union. At the time the revised SUB plan, as agreed upon in the joint negotiations in 1962, was presented to Lukens by the Steelworkers Union, representatives*117 of Lukens were of the belief that its unemployment experience had not been materially different than that of the industry as a whole.
Immediately after it executed its 1962 labor agreement, Lukens communicated the provisions of the revised SUB plan to its employees by distributing to them copies of the plan itself.
During the period from July 1, 1962 (the effective date of the revised SUB plan), to the end of fiscal 1962, Lukens incurred aggregate monthly obligation 4 under the revised SUB plan in the amount of $ 253,427. The foregoing sum was computed by taking into account the 2,667,656 hours worked by Lukens' "eligible employees" during the period, the level of SUB plan finances, and the other relevant factors described in the revised SUB plan. Of the aforesaid aggregate monthly obligation in the amount of $ 253,427, Lukens was required by the terms of the revised SUB plan agreement to pay currently in cash to the SUB Plan Trust, and did so pay, the sum of $ 83,689, being the total current cash obligation. The contingent liability incurred by Lukens, being in the amount of $ 169,738, was recorded on its books of account as an accrued liability.
*118 *780 During fiscal 1963, Lukens incurred aggregate monthly obligation under the revised SUB plan which computed only in accordance with section 8.6 of the revised SUB plan, was in the amount of $ 285,925. 5 The foregoing sum was computed by taking into account the 6,107,490 hours worked by Lukens' "eligible employees" during the year, the level of SUB plan finances, and the other relevant factors described in the revised SUB plan. Of the aforesaid aggregate monthly obligation in the amount of $ 285,925, Lukens was required by the terms of the revised SUB plan agreement to pay currently in cash to the SUB Plan Trust, and did so pay, the sum of $ 62,939, being the total current cash obligation. The balance of the monthly obligation incurred by Lukens, being contingent liability in the amount of $ 222,986, was recorded on its books of account as an accrued liability.
*119 On June 30, 1962, Lukens' contingent liability under the 1956 SUB plan totaled $ 447,732. This sum was, as of July 1, 1962, carried over to the revised SUB plan as additional contingent liability.
During fiscal years 1962 and 1963, Lukens furnished to the Steelworkers Union monthly statements of the financial condition of the SUB plan, which monthly statements showed, among other things, Lukens' aggregate contingent liability under the revised SUB plan.
During the fiscal year indicated, Lukens paid into the SUB Plan Trust in respect of its theretofore incurred contingent liability the following amount: Fiscal 1963, $ 100,588.
The unpaid balance of Lukens' contingent liability under the revised SUB plan on the last day of the years indicated, excluding amounts of contingent liability available for benefits under both the revised SUB plan and the savings plan, was as follows: Fiscal 1962, $ 617,470.92; fiscal 1963, $ 739,868.69.
Cash benefits were paid to Lukens' employees in the following amounts in respect of the years indicated: Last half of fiscal year 1962 (7/1/62-12/29/62), $ 335,141.80; fiscal 1963, $ 199,873.33.
The petitioner did not terminate the 1962 SUB plan or permanently*120 shut down operations during taxable years 1962 or 1963.
On June 30, 1962, the SUB Plan Trust contained cash and U.S. Treasury bills in the amount of $ 283,960. As a result of the payment of cash benefits to employees on layoff during the period July 1, 1962, through the end of fiscal 1963, these cash assets of the SUB Plan Trust were entirely exhausted.
*781 Lukens claimed, in respect of the revised SUB plan which became effective July 1, 1962, the amount of $ 701,159 as a deduction on its return for the taxable year 1962. This represents the sum of (a) the aggregate monthly obligation (both current cash contribution and contingent liability) in respect of hours worked by petitioner's covered employees in the last half of fiscal 1962 in the amount of $ 253,427, and (b) the additional amount of $ 447,732, which was the amount of accrued contingent liability under the old SUB plan as of June 30, 1962, carried over to the revised SUB plan as additional contingent liability and which, by terms of the revised SUB plan, was noncancelable. The respondent allowed a deduction of $ 83,689, being the amount which petitioner paid, or was required to pay, in cash under the revised SUB *121 plan in that year. The balance of $ 617,470 was disallowed. Petitioner also claimed, and respondent allowed, an additional amount of $ 41,353 as a deduction on its return for fiscal 1962, which sum represented petitioner's current cash contribution to the SUB Plan Trust under the old SUB plan for the first half of fiscal 1962.
Petitioner claimed the amount of $ 285,925 as a deduction on its return for the taxable year 1963. This represents the aggregate monthly obligation (both current cash contribution and contingent liability) in respect of hours worked by petitioner's covered employees in fiscal 1963. The respondent allowed a deduction of $ 163,527, of which $ 62,939 was the current monthly cash contribution under the revised SUB plan in respect of fiscal 1963, and $ 100,588 was the amount paid by petitioner into the SUB Plan Trust during 1963 and charged by it against its contingent liability account.
The aggregate monthly obligation (both current cash element and contingent liability) incurred by Lukens under the SUB plan during fiscal years 1962 and 1963 in the amounts of $ 253,427 and $ 285,925, respectively, as well as the sum carried over to the revised SUB plan as additional*122 contingent liability, was treated as an accrued expense and/or accrued liability on (1) Lukens' books of account, (2) Lukens' published financial statements, certified by its independent auditors, and (3) Luken's financial statements filed with the Securities and Exchange Commission.
Lukens intended, and reasonably expected, that its entire contingent liability under the 1962 SUB plan as in effect during the years at issue would be paid. The unpaid contingent liability incurred during each of those years, including the balance of petitioner's contingent liability under the 1956 SUB plan which was carried over to the 1962 SUB plan as additional contingent liability, constituted deferred obligations which were properly accruable as liabilities and were properly deducted by petitioner in the years incurred as ordinary and necessary business expenses.
*782 OPINION
In 1956 petitioner Lukens Steel Co. entered into a labor agreement with the United Steelworkers of America, under which petitioner agreed to establish a supplemental unemployment benefit plan. The purpose of the plan was to provide benefits, in addition to those under State unemployment-benefit programs, to certain of*123 petitioner's employees who were laid off during periods of reduced production which recur cyclically in the steel industry. The amount of petitioner's total obligation under the 1956 SUB plan was determined by reference to the labor hours worked by its "eligible employees" during each of petitioner's thirteen 4-week yearly accounting periods, subject to limitations designed to prevent the total finances of the plan from exceeding prescribed maximum levels, i.e., "maximum financing." The 1956 SUB plan was financed in part by periodic cash payments made by petitioner to a trust and in part by a contingent liability, a promise made by petitioner to pay certain amounts to the trust in the event that the trust assets were insufficient to permit payment of unemployment benefits.
The rate of petitioner's monthly contributions to the 1956 SUB plan was set at a maximum 5 cents per hour worked each month by eligible employees, 3 cents per hour to be paid in cash and 2 cents per hour to be credited to a contingent liability account from which payments were to be made as circumstances required. If in any accounting period contributions of less than 5 cents per work hour were necessary to provide*124 maximum financing the contingent liability portion of petitioner's contribution for that accounting period was reduced accordingly. If contributions of less than 3 cents per work hour were needed, no additions to the contingent liability mentioned above were required to be made and petitioner was only obligated to make reduced cash payments to the trust. During the term of the SUB plan agreement the contingent liability was cancelable in part at such times as, and to the extent that, the total finances exceeded maximum financing and, upon termination of the plan on July 31, 1959, any remaining contingent liability was then cancelable in full. However, as a result of collective bargaining in 1959 and 1960, the balance of contingent liability which had been canceled was restored as a SUB plan asset until December 31, 1962.
To be eligible for benefits under the 1956 SUB plan an employee must have been laid off before he quit, struck, or was discharged, and he must have been continually employed for 2 years prior to such layoff. An employee must have had an available "credit unit" to qualify for each weekly benefit, and, if laid off, must have reported in person weekly at a time and*125 place designated by petitioner and, when applying for benefits, must have received State unemployment benefits or have been able to work.
*783 Thus, under the 1956 SUB plan or contract, which was to last for 3 years and which was extended without material change for another 3-year period, the liability of petitioner to make payments to the fund or trust set up pursuant to the plan which were in excess of the cash payments called for was limited to the period of the existence of the plan and the amount, if any, of the liability depended on the payouts made by the trust to the individual employee beneficiaries of the plan and the time and amount of payouts to these individual employees were contingent upon the happening of certain events which might occur in years subsequent to the year in which the credits were made to the contingent liability account. Accordingly the nature of the obligations of petitioner with regard to these contingent liabilities conformed to their nomenclature. There was no certainty of liability in connection with these so-called contingent liabilities and consequently they were not subject to accrual since all the events had not occurred during the taxable*126 years which determined the petitioner's liability and fixed the amount thereof. See United States v. Anderson, 269 U.S. 422">269 U.S. 422; Transcalifornia Oil Co., Ltd., 37 B.T.A. 119">37 B.T.A. 119, 126. Petitioner did not accrue these contingent liabilities under the 1956 SUB plan and makes no contention that they are accruable expenses.
In 1962 the employment contract between petitioner and the Steelworkers Union provided for a SUB plan which differed in several material respects from the 1956 SUB plan in that the 1962 SUB plan broadened and increased the benefits to the employees and altered the method of financing the plan. The employee eligibility requirement provisions in the 1956 SUB plan were again adopted in the revised 1962 SUB plan with only a few minor changes. As in 1959, the balance of petitioner's contingent liability under the 1956 SUB plan on June 30, 1962, the last day the 1956 SUB plan was in effect, was carried forward as a 1962 SUB Plan Trust asset and treated as contingent liability under the 1962 SUB plan.
Under the 1962 SUB plan, cash and contingent liability were to be contributed to the plan by petitioner to the extent*127 of the lesser of either 9.5 cents per hour worked by covered employees (rather than 5 cents per hour as under the 1956 SUB plan) or an amount which when added to the total finances of the plan would equal maximum financing of the plan. 6 Further changes were made in the 1962 SUB *784 plan in the method of determining the respective portions of petitioner's monthly obligation which would be paid in cash by petitioner to the SUB Plan Trust or which would be credited by petitioner as contingent liability to the plan on its books. As a result of these new financing arrangements it was anticipated that the plan would be funded exclusively with "Contingent Liability" within a few years after the 1962 SUB plan had been in effect and, in fact, the assets of the SUB Plan Trust were entirely exhausted and the plan was funded exclusively with "Contingent Liability" before the end of petitioner's 1963 fiscal year.
*128 As under the 1956 SUB plan, the 1962 SUB plan contingent liability was made payable to the SUB Plan Trust when needed to pay the agreed-upon benefits. However the 1962 SUB plan contained additional agreements to assure the Steelworkers Union that amounts credited to the contingent liability account would be noncancelable and would always be potentially available to petitioner's union employees. As under the 1956 SUB plan, amounts credited to the contingent liability account were to be paid into the SUB Plan Trust when the trust has insufficient cash on hand to meet current supplemental-employee benefits. But it was further provided in the 1962 SUB plan that, upon termination of the plan, both the assets then remaining in the trust fund and the credit remaining in the contingent liability account should be subject to all of the applicable provisions of the plan as in effect at termination and should be used until exhausted to pay benefits to the employees in order of their entitlement. In addition it was provided that if the operations of petitioner were to be permanently shut down, disposition of both the assets in the trust fund and the balance in the contingent liability account*129 was to be made in a manner designed to promote the purposes of the SUB plan later to be agreed upon at that time by petitioner and the Steelworkers Union.
Thus under the 1962 SUB plan, petitioner's obligation to make the payments to the trust was no longer contingent on the payouts made during a specified limited period by the plan or trust to the individual employees which payouts were themselves contingent on certain events. Quite deliberately, and as a result of hard bargaining concerning this very point, the representatives of petitioner and of the union agreed that certain amounts calculated with reference to events happening within the taxable years and in excess of the cash payments required in those years would be paid in future years to the SUB Plan Trust or to some other fund set up under the contract with the union for the benefit of the petitioner's employees. Accordingly the existence of petitioner's liabilities and the amount thereof were fixed during the taxable years even though the time of payment was not. While the time when payments were to be made to the trust from the contingent *785 liability account depended on the rate of payouts of SUB plan benefits, *130 both petitioner and the union reasonably anticipated that the amounts credited by petitioner to the plan as contingent liabilities during the taxable years would be required, on a "first-in first-out" approach, to be paid by petitioner to the trust within a few years, 7 and that any balance in the contingent liability account would be ultimately paid in full to or for the benefit of petitioner's employees. Regardless of these new provisions of the 1962 SUB plan and the fact that the parties intended and their contract provided that the amounts so determined should be ultimately paid out by petitioner for the benefit of its employees -- the members of the contracting union -- the obligations to make these payments continued to be referred to as contingent liabilities.
*131 The contract was executed by petitioner and representatives of that group of its employees who belonged to a certain union and the payments were to be made to a fund or trust of which the members of this group as of certain times and possessing certain qualifications were to be beneficiaries. They were to be made by petitioner to the trust for the primary purpose of financing a plan for the payment of unemployment benefits by the trust to petitioner's employees and the amounts of petitioner's liabilities were determined by events occurring in the taxable years. To the extent not needed for maximum financing of this fund, payments from this contingent liability account were to be made as needed to an employee savings and vacation fund. In no event could the contingent liability be canceled by petitioner. To the contrary any balance remained payable for the benefit of the employees in the full amount accrued. They were not to be made directly to the employees and they were not contingent with regard to existence or amount on the occurrence of events in subsequent years as in TennesseeConsolidated Coal Co., 15 T.C. 424">15 T.C. 424; Morrisdale Coal Mining Co., 19 T.C. 208">19 T.C. 208;*132 Turtle Wax, Inc., 43 T.C. 460">43 T.C. 460; and Oberman Manufacturing Co., 47 T.C. 471">47 T.C. 471. In this case the amounts of the contingent liability accrued by petitioner were fixed by events occurring or facts existing before the end of the taxable years and the ultimate payment of those amounts by it was "reasonably certain in fact." Cf. Commissioner v. Brooklyn Radio Service Corp., 79 F.2d 833">79 F. 2d 833, 834.
Thus we have in the instant case a liability fixed as to existence and amount by reference to facts existing during the taxable years with its ultimate payment reasonably certain in fact but indeterminate *786 during the years of accrual with regard to the ultimate recipients' exact shares of the accrued amounts and with regard to the times of actual payouts, the latter being dependent on the reasonably anticipated occurrence of economic events.
The facts of the recent case of Washington Post Co. v. United States, 405 F. 2d 1279 (Ct. Cl. 1969), are quite similar to those of the case before us. In that case the court held that "when a 'group liability' is involved, it*133 is the certainty of the liability which is of utmost importance in the 'all events' test, and not necessarily either the certainty of the time over which the payments will be made or the identity of the payees." See also Avco Manufacturing Corp., 25 T.C. 975">25 T.C. 975, 999-1011; United Control Corporation, 38 T.C. 957">38 T.C. 957; Willoughby Camera Stores, Inc. v. Commissioner, 125 F. 2d 607 (C.A. 2), reversing 44 B.T.A. 520">44 B.T.A. 520; and Rath Packing Co. v. Bacon, 255 F. Supp. 809">255 F. Supp. 809 (S.D.Iowa).
In our opinion the rationale of these cases is applicable to the case before us and requires a decision in favor of petitioner.
A summary of respondent's principal argument to the effect that no expenses can be accrued by petitioner for the taxable years on account of credits to the contingent liability account is as follows: Even though payments to petitioner's employees be considered as earned by them during each of the taxable years (a fact which respondent does not concede) and the liability to make such payments may be considered "noncancelable," such payments*134 are to be made in subsequent years and only if an employment relationship then exists; this requirement is a condition precedent; the payments to be made to the trust or fund set up by the SUB plan which are chargeable to the contingent liability account depend on the insufficiency of cash in the fund to meet its current benefits payments; and since the latter payments are subject to a condition precedent, the payments chargeable to the contingent liability account must be considered as subject to a condition precedent. Respondent concludes that the items here in question are contingent expenses not subject to accrual. Respondent also contends that petitioner has failed to prove "that a reasonably accurate estimate of future expenditures under the plan has or can be made" and even if this estimate had been proved no deduction under an accrual method of accounting would be made of any reserve for future estimated expenditures. In connection with this latter phase of his argument respondent cites E.W. Schuessler, et ux, 24 T.C. 247">24 T.C. 247, revd. 230 F. 2d 722 (C.A. 5), and Bressner Radio, Inc., 28 T.C. 378">28 T.C. 378,*135 revd. 267 F. 2d 520 (C.A. 2). Respondent also suggests that the reasoning in American Automobile Association v. United States, 367 U.S. 687">367 U.S. 687, and Schlude v. Commissioner, 372 U.S. 128">372 U.S. 128, is apposite to his argument.
With regard to the latter phase of respondent's argument we disagree with his interpretation of the facts and with his contention that the principles underlying the cited cases are applicable to the instant *787 case. The creation and existence of an accrued liability in the instant case does not depend upon an estimate of anticipated future expenditures. The only estimate pertinent to the instant case concerns the question of whether it can reasonably be anticipated that an existing liability will be paid. Our consideration of the record before us leads us to the conclusion we have already stated, that the ultimate payment by petitioner of the amounts charged by it to the contingent liability account and deducted by it as accrued expenses was reasonably certain in fact.
With regard to respondent's principal argument we have already indicated our disagreement. In our*136 opinion the certainty of petitioner's liability under the SUB plan of 1962 is such as to justify its accrual during the taxable years in spite of any uncertainty as to the time over which payments ("reasonably certain in fact") will be made under this liability and in spite of any uncertainty as to the specific identity of the individual employees of petitioner ultimately receiving payment of the benefits paid. See Washington Post Co. v. United States, supra.
Decision will be entered under Rule 50.
Footnotes
1. The prescribed levels were percentage figures determined by comparing the total finances of the SUB plan to an amount determined to be "maximum financing" of the SUB plan. The term "maximum financing" is defined in fn.2, infra↩.
2. "Maximum financing" is defined in art. III, sec. 2(b), of the 1956 SUB plan as the product of 10.5 cents multiplied by the number of "contributory hours" worked by covered employees during the first 13 of the 15 accounting periods immediately preceding the accounting period for which the determination of maximum financing is made. Generally speaking, "contributory hours" are all of the hours during which all of the employees covered by the 1956 SUB plan actually performed services for Lukens.
To illustrate, if it is assumed that the 1956 SUB plan covered only one Lukens employee who worked 40 hours a week during 50 of the 52 or 53 possible weeks which might be included in 13 consecutive fiscal accounting periods, maximum financing with respect to that employee would be 10.5 cents x 40 hour x 50 weeks, or $ 210.↩
3. Again if it is assumed that the 1956 SUB plan covered the one Lukens employee referred to in the hypothetical case in the previous footnote with respect to whom maximum financing would be $ 210, if Lukens were to make contributions of 5 cents per contributory hour from the commencement of the plan, and if no benefits were paid under the plan, the total finances of the plan would reach maximum financing after a period slightly in excess of 2 years. This is determined by the following calculation: $ 210 maximum financing / (5 cents x 40 hours x 50 weeks) = 2.1 years.↩
4. The term "Monthly Obligation" is the term used in the revised SUB plan to describe the total amount of cash and contingent liability to be contributed to the plan by Lukens during each of its thirteen 4-week accounting periods constituting its fiscal year.↩
5. It is stipulated by the parties that Lukens claimed only the amount of $ 285,925 as a deduction on its tax return for the taxable year 1963. Lukens claimed no accruable deduction for amounts credited for benefits in both the SUB plan and savings and vacation plan in accordance with art. XXI, sec. E, and art. XIV, sec. 2(B), of the agreement between Lukens and the Steelworkers Union, set out earlier in these findings of fact. It is apparent from the stipulated exhibits herein that Lukens was in fact required to set aside amounts during its 1963 fiscal year for both the SUB plan and the savings and vacation plan in accordance with the articles mentioned in the preceding sentence. A computation of these amounts does not appear in the record of this case.↩
6. In addition the 1962 SUB plan provided that contingent liability, to the extent that it was not needed to achieve maximum financing of the SUB plan and in an amount not to exceed 4.5 cents per hour worked by employees covered by the savings and vacation plan, shall be added to financial availability account of the savings and vacation plan in an amount which would cover employee benefits accumulated under that plan. Amounts of Contingent Liability not utilized by the savings and vacation plan in the manner stated above were to be returned to the SUB plan to be made available for SUB plan benefits and also for future savings and vacation plan benefits to the extent assets or credit available to the savings and vacation plan financial availability account were insufficient to finance accumulated employee benefits. The contingent liability amounts so returning to the SUB plan were to be ignored in calculating petitioner's periodic obligation to make payments or credits to the SUB plan.↩
7. Assuming that at a given moment in time the total finances of the 1962 SUB plan equaled $ 900,000 and the average yearly employee-benefit payments to be paid from the plan (and contributions to be credited to the plan) was anticipated to be $ 450,000 per year, then using a "first-in first-out" approach, it could be anticipated that all of the $ 900,000 total finances of the plan at that moment of time would be used up to pay employee benefits within 2 years ($ 900,000 / $ 450,000 per year).↩