*286 Decision will be entered under Rule 50.
The petitioners were employed by a company which established a noncontributory pension plan for the exclusive benefit of its employees. A trust which formed part of the plan gave them the right in lieu of retirement to continue as employees and receive annuity benefits. Since the petitioners were then beyond the retirement age the company contributed funds to the trust for the purchase of single premium annuities for their benefit. Two of the petitioners were stockholders, directors and officers of the company, as well as the trustees, and two of the three were members of a pension committee under the trust. Held, the petitioners were bona fide beneficiaries of a trust which qualified under section 165, as applicable to 1941 and 1942, and are taxable under that section only on the amounts actually distributed to them during those years.
*98 These proceedings, consolidated for hearing, involve the following deficiencies in 1941 income and 1943 income and victory taxes:
| Deficiency | |||
| Docket No. | |||
| 1941 | 1943 | ||
| Minto L. Oliver | 12072 | $ 6,602.13 | |
| Clarence A. Safford | 12073 | 992.68 | |
| Arthur F. Oliver | 12074 | 9,502.43 | $ 7,488.17 |
The 1942 income of Arthur F. Oliver is the basis for his 1943 liability under the Current Tax Payment Act of 1943.
The sole issue is whether the respective petitioners are taxable under section 22 of the Internal*288 Revenue Code on amounts equal to the cost of certain single premium annuities purchased for their benefit during 1941 and 1942.
FINDINGS OF FACT.
The parties have filed a stipulation of facts, which is incorporated herein by reference. A summary of those facts is included hereinafter.
The petitioners reside in Buffalo, New York. They kept their books on a cash basis and they filed their income tax returns on that basis with the collector of internal revenue for the twenty-eighth district of New York.
All of the petitioners were employed by the A. F. Oliver Gear & Machine Co. Arthur F. Oliver was the president, Minto L. Oliver (Arthur's sister) was the secretary and treasurer, and both were directors of the company. Arthur held 190 shares and his sister held 9 shares of the outstanding common stock, consisting of 200 shares. Clarence A. Safford was neither a stockholder, director, nor officer of the company.
On November 14, 1941, the company established a noncontributory pension plan for the exclusive benefit of its employees, including the petitioners. On the same date a trust agreement was executed between Arthur F. Oliver, as president, and himself and his sister, as trustees, *289 to effectuate the plan. The trust provided that all employees who had completed 15 years (later reduced to 5 years) of service were eligible to participate. The pensions were to approximate, when added to social security benefits, fixed percentages of the employees' current income. The percentages ranged from 35 per cent in the case *99 of higher paid employees to 60 per cent in the case of lower paid employees. The trust was to be administered by a pension committee of not less than 3 persons to be selected by the company's board of directors. It was agreed that the company would contribute the necessary funds to provide pensions through the purchase of individual retirement annuity contracts; that the trustees would obtain such contracts for all eligible participants; and that the pension committee would have absolute control over all such contracts.
The trust provided in part that if any participating employee resigned or was dismissed "before his retirement date" his interest would terminate "at the option of the Pension Committee." However, the "Pension Committee, at its option" could either (1) transfer the contract or the cash surrender value thereof to such participant, *290 or (2) use the funds to promote the general purposes of the trust. Arthur F. Oliver, his sister, and W. J. Riley were the members of the pension committee at all times material hereto.
The trust was declared to be irrevocable, but it could be terminated by action of the company's board of directors. In that event the trustees were to turn over to the participants "as the Pension Committee shall decide" (quoted words later deleted) their annuity contracts or the cash surrender value thereof. It was provided originally that the trust could be changed, altered, or amended by a supplemental trust or a new trust "If any condition or situation not now foreseen or adequately provided for should hereafter make it advisable" in the judgment of the trustees and the company.
Nine out of 21 persons employed by the company were eligible to participate in the pension plan on November 14, 1941. The other 12 employees had been employed less than 3 years. The petitioners were the only employees who had attained the retirement age. The trust provided that they "may in lieu of retirement continue in service in which event the annual payments to them from the Trust will continue undiminished." *291 The company contributed the funds required to pay premiums on annuity contracts for the nine eligible participants. Each contract purchased by the trustees in 1941 contained a provision that the pension committee "shall have full right to hold, control, assign, transfer or otherwise dispose of said contract and shall, without the consent of the annuitant have, exercise and enjoy every right and privilege even though specifically reserved to the annuitant, except that the annuitant shall receive all annuity payments thereunder." The contract purchased in 1942 for Arthur F. Oliver provided that the pension committee was "Absolute Owner," with the right to receive all payments except annuity payments. Since the petitioners had *100 attained retirement age and were entitled to immediate benefits the trustees purchased single premium annuity contracts as follows:
| Total premiums paid | |||
| Annuitant | Monthly | ||
| benefit | |||
| 1941 | 1942 | ||
| Minto L. Oliver | $ 84.00 | $ 15,852.31 | |
| Clarence A. Safford | 39.00 | 6,127.52 | |
| Arthur F. Oliver | 200.00 | 17,931.90 | $ 17,239.90 |
The petitioners included the amounts actually distributed to them in their respective gross incomes for the taxable*292 years. The Commissioner included in lieu thereof the full amounts paid by the trustees for their respective annuity contracts.
During each year subsequent to 1942, the company has contributed the funds required to pay premiums on annuity contracts for all eligible participants. The trustees have purchased contracts for three additional participating employees. No additional contracts have been purchased for the petitioners.
The original trust was amended in January 1945, effective as of November 14, 1941. The amendment was made within the time provided by section 162 (d) (1) of the Revenue Act of 1942, as amended, to conform to the requirements of section 165 (a) of the Internal Revenue Code, as amended. By letter dated February 24, 1945, the Commissioner ruled that the trust, as amended, was exempt from tax under section 165 (a), as amended, and that contributions to the trust were allowable as deductions under section 23 (p) of the Internal Revenue Code.
The company deducted in its tax returns the full amounts of its contributions to the trust during 1941 and 1942. The Commissioner disallowed nine-tenths of the amounts contributed for the purchase of single premium annuity*293 contracts for the petitioners. The company agreed to the allowance of deductions for such contracts on the basis of an annual rate of one-tenth of the cost thereof.
OPINION.
The Commissioner determined that the petitioners are taxable under section 22 (a) on amounts equal to the cost of the annuities purchased for their benefit. The petitioners have assigned that determination as error. Further, they allege that the respondent erred in failing to determine that the annuities were held by trustees under a pension plan, that the trust satisfied the applicable requirements of section 165, and that the petitioners are taxable under that section only on the annuity income.
The respondent's sole contention is that the purchase of single premium annuity contracts for the benefit of the petitioners resulted *101 in a distribution to them of amounts equal to the cost thereof because Arthur F. Oliver and his sister "could have retired from the Company, could have directed the retirement of Clarence A. Safford, and could have caused the immediate transfer of the single premium policies to themselves, and to Safford." We think the respondent is wrong in his premise that the Olivers, as*294 members of the pension committee, could have transferred the annuity contracts to themselves and to Safford upon retirement. They had that right only if any participant resigned before his retirement date. All of the petitioners were beyond the retirement age. However, the Olivers, as members of the company's board of directors, could have terminated the trust. In that case the Olivers, as trustees, were to turn over to the participants their annuity contracts or the cash surrender value thereof, as determined by the pension committee. The respondent relies upon Oberwinder v. Commissioner, 147 Fed. (2d) 255, and Hubbell v. Commissioner, 150 Fed. (2d) 516. In those cases the taxpayers were held taxable on the value of the annuity contracts which had been purchased for them by their respective employers. But the employers in those cases had not set up a pension plan or trust which qualified under section 165. The respondent argues that the present facts are indistinguishable from those in the cited cases because here "in substance, the corporation purchased single premium annuity policies for petitioners and*295 turned these policies over to petitioners. This is evident from the fact that petitioners had already passed the age requirement under the pension plan before it was created by them and they, therefore, were immediately in a position to benefit."
The respondent's whole argument appears to rest upon the theory that the petitioners "were at no time under the plan when it was created in 1941" and that "the pension trust as set up does not apply" to them because they were then of retirement age. However, the respondent's theory is contrary to the facts. The parties have stipulated that "the Company established its non-contributory Pension Plan for the exclusive benefit of its employees, including Petitioners" by creating a trust which provided that the petitioners could "in lieu of retirement continue in service in which event the annual payments to them from the Trust will continue undiminished." We have concluded that the petitioners were bona fide beneficiaries under the trust. They were not entitled to delivery of the annuity contracts or payment of the cash surrender value thereof unless the trust was terminated as to all participants. The stipulated facts show that the trust*296 was intended to be permanent. There is no evidence, and no contention, that the trust was a subterfuge for the exclusive benefit of the petitioners.
The original trust was later amended to conform with subsections (3), (4), (5), and (6) of section 165, as amended by section 162 (a) of the Revenue Act of 1942. However, those subsections are inapplicable *102 to these proceedings, since the trust was in effect before September 1, 1942, and the years involved here are 1941 and 1942. See section 162 (d) (1) (A) of the Revenue Act of 1942. The respondent does not deny that a pension trust was set up in 1941. He does not contend that it failed to satisfy the applicable requirments of section 165 during 1941 and 1942. We hold that the original trust met those requirements. The pension plan was not limited to the petitioners, but included all employees who had served the prescribed number of years; the contributions made by the employer were for the purpose of distribution to such employees and could not be used for, or diverted to, purposes other than for the exclusive benefit of employees. Cf. Phillips H. Lord, 1 T. C. 286; Raymond J. Moore, 45 B. T. A. 1073.*297 Section 165, before and after amendment by the Revenue Act of 1942, provides that the beneficiary of a qualified employees' trust shall be taxed on the "amount actually distributed or made available" to him, in the year in which so distributed or made available. We hold that it was error for the Commissioner to tax the petitioners on the value of the annuities purchased for their benefit.
Decision will be entered under Rule 50.