*89 Decision will be entered under Rule 50.
In 1943 petitioner's employees entered into an agreement with one another establishing the Erie Times Employees Benefit and Pension Fund. The agreement provided that an employee would be eligible to participate in the fund if he had completed 20 years of continuous service and had contributed to the fund for five years. In the event of an employee's death or termination of service, for any reason, he was entitled only to a bare refund of his own contribution. The agreement established no pension plan, but contemplated the establishment of a plan after five years. In 1944 and 1945 petitioner contributed $ 10,000 and $ 2,500, respectively, to the fund and claimed these contributions as a deduction from its gross income. Held, petitioner is not permitted to deduct these contributions from its gross income. Since the fund did not conform to section 165 (a) of the code and petitioner's employees did not receive a nonforfeitable right in petitioner's contributions at the time of payment, these contributions are not an allowable deduction under section 23 (p) of the Internal Revenue Code. An employer's contribution to an employees' pension*90 fund or payments under a plan deferring the receipt of compensation are not allowable deductions from gross income if the payments can not be brought within section 23 (p) of the code, as amended by the Revenue Act of 1942, section 162 (b).
*329 This proceeding involves deficiencies in excess profits tax for the calendar years 1944 and 1945 in the respective amounts of $ 15,385.68 and $ 12,168.58. The deficiencies are due to several adjustments in petitioner's gross income and its equity invested capital as disclosed by the returns for the years 1944 and 1945. Petitioner contests three of these adjustments by appropriate assignments of error. In the stipulation filed one of the assignments of error was settled by agreement. Effect will be given this stipulation in the recomputation under Rule 50. This leaves for our consideration only the contested adjustments disallowing deductions of $ 10,000 and $ 2,500 for the years 1944 and 1945, respectively, explained by the respondent in a statement attached to the deficiency notice for 1944 as follows:
It is determined that the deduction claimed in the return in the amount of $ 10,000.00 under the caption "Employees: Benefits and Pension Fund" is not an allowable deduction from your gross income under the provisions of the*92 law.
A similar explanation was made in the deficiency notice as to the $ 2,500 which the Commissioner disallowed for 1945. The sole issue, therefore, is whether the contributions made in 1944 and 1945 to the *330 Erie Times Employees Benefit and Pension Fund are allowable deductions within the meaning of section 23 of the Internal Revenue Code.
FINDINGS OF FACT.
The facts which were stipulated are so found. Other facts are found from the evidence.
Petitioner is a corporation, organized and existing under the laws of the Commonwealth of Pennsylvania, with its principal office and place of business in Erie, Pennsylvania. Petitioner is now, and was in the calendar years 1944 and 1945, engaged in the business of newspaper publishing in the city of Erie and is the publisher of the Erie Daily Times, a daily newspaper of general circulation. Petitioner filed its income and excess profits tax returns for the years 1944 and 1945 with the collector of internal revenue for the twenty-third district of Pennsylvania. Petitioner keeps its books and files its income and excess profits tax returns in accordance with the accrual method of accounting.
On or about March 22, 1943, the employees*93 of the petitioner entered into an agreement with one another to create a pension fund to be known as "The Erie Times Employees Benefit and Pension Fund," this fund to become effective on April 3, 1943. The agreement of petitioner's employees, dated March 22, 1943, was as follows:
Erie, Pa. March 22, 1943
At a meeting of the employes of The Times Publishing Company, held at The Press Club Saturday, March 20, 1943, it was decided that a Pension Fund was desirable.
Discussions were held as to the different methods of inaugurating and financing a Pension program.
Proposals that had been made by Insurance companies, and reviews of other Pension Funds were presented by Mr. Sprickman and members of the Committee which had studied them.
The possibilities of formulating a definite program at this time were discussed and it was decided, because of the uncertainties relative to the amount of money that would be available, that funds be accumulated for a period of five years.
The following plan was proposed and unanimously adopted as the structure on which the Fund could operate during the five years period. It was agreed that this would be subject to amendment and change depending upon the*94 conditions of the Fund at the end of five years, at which time more definite plans could be inaugurated on the basis of funds accumulated.
THE ERIE TIMES EMPLOYES BEBEFIT [sic] AND PENSION FUND
The Pension Fund for the benefit of the employes of The Erie Daily Times is a trust created for the exclusive bebefit [sic] of eligible employes contributing weekly from payroll deductions authorized by the employe.
The purpose of this Fund is:
1 -- To provide a plan whereby each employe may accumulate a fund to take care of his financial needs dueing [sic] the close of his active career.
*331 2 -- The minimum bebefits [sic] derived by the employe will be his weekly contribution plus other accumulations as later may be granted by the Board of Directors.
Definitions
"The Fund" will mean the total amount accumulated from all sources during the operation of same.
"The Company" will refer to The Times Publishing Company.
"Continuous Service" shall have the meaning as imparted by The Company Personnel policy.
EligibilityAll full time employes other than stockholders of The Times Publishing Company shall be eligible to participate in the Fund, so long as he remains an*95 eligible employe, subject to all the terms and conditions of the Fund provided he signs a participation request, in such form as may be prescribed by the trustees, within 60 days after the Fund becomes effective, or within two months after entering the employ of the Company.
Contributions to the FundAn eligible employe in order to participate in the Fund must deposit $ 1.00 weekly by the Payroll Deduction Plan.
Contributions to the Fund by the Company are not guaranteed and thus cannot be anticipated in any future period computation.
Pension and other withdrawels [sic]
It is hereby agreed that no pensions of any nature be made for a period of at least five years from the effective date of the Fund.
A depositor shall cease to be a member of the Fund when his services are terminated for any reason, or when he fails to make regular deposits, except while on leave of absence as approved by the Company.
In the event of the death of any depositor, the immediate family or estate will receive all deposits made by the depositor, and any additional accumulations that the Board of Directors may designate in future years.
ParticipationA depositor who has completed twenty*96 years of continuous service as approved by the Company will be eligible to participate in the Pension Plan, after at least five years of uninterrupted contributions as required by the Fund.
The amount of pensions to be paid will not be determined until the end of the first five years and will be governed by the available balance to be conservatively distributed in regard to the number of eligible depositors at that time.
A Depositor who terminates his services for any reason may elect to withdraw his total deposits after a period of ten days notice. The total amount of the withdrawals will be the amount of his total deposits only.
ManagementThe Fund shall be under the management of seven employes comprising the Board of Directors of the Fund, who in turn shall elect a President, Vice President, Secretary and Treasurer.
No trustee or officer shall receive any compensation for his or her services.
The Board of Directors shall determine the depository in which the monies and securities of the Fund shall be kept.
Effective DateThe Fund shall become effective on April 3, 1943.
* * * *
The following officers were elected: Karl Sprickman, Harold Sullivan, Dick Daley, Charles*97 Wells, Marlin Allen, Alice Peerboom, Norman Gingenbach.
*332 On December 20, 1944, petitioner contributed the sum of $ 10,000 to the Erie Times Employees Benefit and Pension Fund, the contribution being recorded on December 20 in its books of original entry under "Miscellaneous Expense." On December 29, 1945, petitioner contributed the sum of $ 2,500 to the Erie Times Employees Benefit and Pension Fund, the contribution being recorded on December 29 in its books of original entry as "Administrative & General Expense." Petitioner made no contribution to the trust fund after December 29, 1945, because of a dispute with the Federal tax authorities.
On April 5, 1948, the trustees of the fund held a meeting at which the original object of the pension trust fund was restated. However, the trustees decided at that meeting that no action could be taken to put any pension plan into operation in view of the unsettled situation with respect to contributions from petitioner and further decided that the fund should be continued for the time being without any change in the existing arrangements.
OPINION.
The issue presented in this proceeding is whether the $ 10,000 and $ 2,500 contributions*98 of petitioner in 1944 and 1945, respectively, to the Erie Times Employees Benefit and Pension Fund are allowable deductions from petitioner's gross income. Petitioner contends that these deductions are allowable as an ordinary and necessary expense under section 23 (a) (1) (A) of the Internal Revenue Code. 1*99 Respondent contends that these contributions, if allowable at all, must first come within section 23 (p) of the Code 2 and that *333 section 23 (p) expressly prohibits the deduction of such contributions as petitioner is claiming to be deductible. Respondent's additional argument is that the contributions here involved do not constitute an ordinary and necessary expense under section 23 (a) (1) (A).
*100 The allowance of a deduction from gross income being a matter of legislative grace, a particular deduction will be allowed only if there is a clear provision for it in the law. New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435. It is necessary, therefore, to find whether there is a provision for the deduction of contributions to an employees' pension fund or as payments under a plan deferring the receipt of compensation to employees such as we have here. Section 23 (p) contains express language as to deductions for such contributions or deferred compensation payments and that section requires that if these items are to be deductible the plan must either conform to section 165 (a) of the code 3 or, if they do not conform to that section, then the employees' rights to the payments must be nonforfeitable at the time the contributions or deferred compensation is paid. 4
Our first task is to determine whether*101 the contributions which petitioner made in 1944 and 1945 were made to a trust which was exempt under section 165 (a) of the code, printed in the margin. 5 It is clear that the Erie Times Employees Benefit and Pension Fund, to which petitioner made its contributions, was not a trust which falls within the exemption provisions of section 165 (a). That section refers to a trust which has been formed by an employer as part of a stock bonus, pension, or profit-sharing plan inaugurated by the employer. The Erie Times Employees Benefit and Pension Fund was not inaugurated by petitioner, but was set up by petitioner's employees. The trust agreement itself states: "Contributions to the Fund by the Company are not guaranteed and thus cannot be anticipated in any future period." Therefore, it seems clear that, for the above and other reasons, the trust in question is not exempt under section 165 (a). Cf. Harold G. Perkins, 8 T. C. 1051.
*102 It may well be true that the Erie Times Employees Benefit and Pension Fund was a trust which was exempt from taxation under section *334 101 (16) of the code, as argued by petitioner. We do not have the trust before us as a taxpayer and, therefore, we make no decision in that respect. Section 101 (16) has nothing to do with the question we have here to decide. Section 165 (a) is the exemption statute as to employees' trusts and we decide that the trust was not exempt under that provision of the statute. But it is true that, even if the employees' trust here involved was not one which is exempt under the provisions of section 165 (a), nevertheless, the payments may be deductible if the employees' rights to or derived from such employer's contribution or such compensation were nonforfeitable at the time the contribution or compensation was paid. See section 23 (p) (1) (D), footnote 2, supra. Since no employee could share in petitioner's contributions prior to April 3, 1948, and an employee was entitled to receive only the bare refund of his own contributions in the event of death, termination of employment, or default in making payment before that time (or before the *103 completion of 20 years consecutive service with the company), the employees did not have a nonforfeitable right in petitioner's contributions. Cf. Harold G. Perkins, supra.We hold, therefore, that the payments by petitioner are not an allowable deduction under section 23 (p).
It is necessary for us to determine whether section 23 (p) is the only section under which contributions to an employees' pension fund or payments under a plan deferring the receipt of compensation are deductible. If section 23 (p) is the only section under which the disputed deduction is allowable, it will not be necessary to determine whether the payments involved herein constituted an ordinary and necessary expense under section 23 (a) (1) (A), as petitioner contends and strongly argues in its brief. Section 23 (p) deals specifically with deductions for payments of the nature of those of petitioner. In accordance with the general canons of statutory interpretation, it could be argued that section 23 (p), being specific, controls the allowance of deductions for the contested payments of petitioner, and that the general language of 23 (a) (1) (A) must give way to the specific*104 limitations of 23 (p). MacEvoy Co. v. United States, 322 U.S. 107">322 U.S. 107; Ginsburg & Sons, Inc. v. Popkin, 285 U.S. 204">285 U.S. 204; and United States v. Chase, 135 U.S. 255">135 U.S. 255. However, since we have held under revenue acts prior to 1942 that some contributions which are not allowable under 23 (p) were allowable under 23 (a) (1) (A), 6 and, since section 23 (p) refers to 23 (a), it seems appropriate that we examine the committee reports and the history of the legislation to find the intent of Congress as to the purpose and scope of section 23 (p), as amended by the 1942 Revenue Act.
*335 Prior to the Revenue Act of 1942 the provisions allowing deductions for contributions to employees' pension trust funds had been the subject of considerable abuse. 7The committee reports indicate that, *105 in amending the provisions of the code dealing with contributions to pension trust funds and payments under a plan deferring the receipt of compensation, Congress intended, in addition to remedying the existing defects in the law, to make section 23 (p) the exclusive section under which payments in the nature of those of petitioner may be allowed as a deduction. 8 Since section 23 (p) is the exclusive section under which contributions to a pension fund or payments deferring the receipt of compensation are deductible, respondent's disallowance of petitioner's deduction is proper, as petitioner's contributions do not fall within section 23 (p). In the recent case of Tavannes Watch Co. v. Commissioner, 176 Fed. (2d) 211, the court pointed out that section 23 (p), as amended by the Revenue Act of 1942, is the *336 exclusive section providing for such deductions as those here claimed. In discussing the amendments contained in the 1942 Act, the court said:
Before the adoption of the Revenue Act of 1942, payments made to employees' profit-sharing funds could be deducted either as "ordinary and necessary" business expenses, under Section 23 (a)*106 of the Code, or under the specific provisions for such deductions of Section 23 (p) of the Code. In the Revenue Act of 1942 Congress forbade any such deduction except in accord with Section 23 (p) of the Code as amended by that Act.
*107 Petitioner and respondent cite several cases in support of their respective contentions as to the allowability of petitioner's contributions as an ordinary and necessary expense under section 23 (a) (1) (A) of the code. Those cases are distinguishable from the instant proceeding in that they involve contributions prior to the amendment of section 23 (p) by section 162 (b) of the Revenue Act of 1942. Because we hold that petitioner's contributions are not allowable under section 23 (p) and that such contributions, if allowable at all, must in the first instance be brought under that section, it is not necessary for us to decide what additional limitations, if any, section 23 (a) (1) (A) imposes on the allowability of these contributions.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
(a) Expenses. --
(1) Trade or business expenses. --
(A) In General. -- 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; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.↩
2. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
* * * *
(p) Contributions of an Employer to an Employees' Trust or Annuity Plan and Compensation Under a Deferred-Payment Plan. --
(1) General rule. -- If contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under subsection (a) but shall be deductible, if deductible under subsection (a) without regard to this subsection, under this subsection but only to the following extent:
(A) In the taxable year when paid, if the contributions are paid into a pension trust, and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 165 (a), in an amount determined as follows:
* * * *
(D) In the taxable year when paid, if the plan is not one included in paragraphs (A), (B), or (C), if the employees' rights to or derived from such employer's contribution or such compensation are nonforfeitable at the time the contribution or compensation is paid.↩
3. See section 23 (p) (1) (A), (B), (C)↩.
4. See section 23 (p) (1) (D)↩.
5. SEC. 165 EMPLOYEES' TRUSTS.
(a) Exemption from Tax. -- A trust forming part of a stock bonus, pension or profit sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall not be taxable under this supplement and no other provision of this supplement shall apply with respect to such trust or to its beneficiary -- [Italics supplied.]
* * * *↩
6. Gisholt Machine Co., 4 T. C. 699; Surface Combustion Corporation, 9 T. C. 631↩.
7. H. Rept. No. 2333, 77th Cong., 2d sess. (July 14, 1942):
"18. PENSION TRUSTS AND OTHER RETIREMENT PLANS.
"The present law endeavors to encourage the setting up of retirement benefits by employers for their employees and in pursuance of this policy permits employers to take as a deduction amounts irrevocably set aside in a pension trust or other fund to provide annuities or retirement benefits for superannuated employees. This provision has been considerably abused by the use of discriminatory plans which either cover only a small percentage of the employees or else favor the higher paid or stock-holding employees as against the lower paid or non-stockholding employees." [P. 50.]↩
8. H. Rept. No. 2333, 77th Cong., 2d sess. (July 14, 1942):
"The amendments made by the bill are intended to remedy the two most serious abuses of the pension trust provision as follows:
* * * *
"In addition, all methods of providing deferred compensation for employees, such as stock bonus and profit-sharing plans and the purchase of annuity contracts directly from insurance companies, as well as pension trusts proper, will be treated on a similar basis [p. 51]:
* * * *
"The existing provision of section 23 (p) relates to deductions for contributions made by an employer to a pension trust. It provides that contributions made by an employer to a trust that satisfies the requirements of section 165 shall be allowed as a deduction (in addition to the contributions to such trust during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under section 23 (a)) to the extent of a reasonable amount paid into the trust during the taxable year in excess of the contributions deductible under section 23 (a), if such amount has not theretofore been allowable as a deduction, and apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer or payment is made. Thus, it is necessary to determine what contributions are deductible under section 23 (a) in order to cover the pension liability accruing during the year, and then to determine how much is deductible under section 23 (p). It has been decided that in the interest of clarification and administration of the tax laws no deductions should be allowable under section 23 (a) for amounts paid into a pension trust, but all such deductions should be allowable only under section 23 (p). * * *" [P. 150.]S. Rept. No. 1631, 77th Cong., 2d sess. (Oct. 2, 1942):
"If contributions are paid to a trust under a plan and the trust and plan do not meet the requirements of section 165 (a) or are paid for an annuity contract and the annuity contract is not purchased under a plan which meets the requirements of section 165 (a) (3), (4), (5), and (6), the employer will receive no deduction for such amounts so paid or accrued unless the employee's rights are non-forfeitable at the time the contributions are made, in which case the employer may be allowed a deduction for the full contribution in the year in which the contributions are made." [P. 140.]
See also footnote 2, Gisholt Machine Co., 4 T. C. 699↩; Mertens Law of Federal Income Taxation, 1948 Supp., sec. 25.71, p. 226.