597 F.2d 1379 | Ct. Cl. | 1979
delivered the opinion of the court:
Section 404 of the Internal Revenue Code allows a taxpayer-employer to deduct contributions to certain employee retirement, pension, and profit-sharing plans in "the taxable year when paid.” See I.R.C. § 404(a). For such taxpayers on the accrual method section 404(a)(6) provides a grace period, allowing the taxpayer to deduct contributions made after the tax year “if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).”
I
The facts have all been stipulated and there is no dispute as to what happened.
To implement Article IX, plaintiff hired an actuarial firm to compute its minimum liability. The actuary computed both the normal cost and the cost of amortizing the initial unfunded liability over forty years. The amortization of past unfunded liability included not merely interest on such liability (as required by Article IX of the retirement plan) but also a sum sufficient to cover the principal amortized over forty years. The actuary’s report also provided the maximum contribution which would be tax deductible for that year, a sum several million dollars greater than both the normal cost and forty-year amortization costs.
In 1968 the actuary calculated $4,365,916 (adjusted for uncontested payments of one of plaintiffs subsidiaries) as the amount necessary to fund both normal and amortization costs, and taxpayer actually paid this sum within the time period allowed for filing its return (plus extensions). But taxpayer also paid within the return deadline an additional sum (after adjustments) of $880,429, which taxpayer initially credited on its own books as payment toward its 1969 costs.
In 1969 taxpayer paid within the filing deadline a sum of $4,399,468, as computed by its actuary (again with a small adjustment for one subsidiary). This amount, which included the $880,429 now claimed for 1968, was claimed and allowed as a deduction for 1969. Again, taxpayer in 1969 also paid within the filing deadline (i.e. the grace period) an additional sum (after adjustments) of $1,250,800, which it originally credited on its own books as payment toward 1970 plan costs.
In both 1968 and 1969, plaintiffs accountants accrued book liabilities only for the total actuarial costs (normal plus forty-year amortization costs). No liability was recorded in 1968 or 1969 for the additional amounts ($880,429 and $1,250,800, respectively) that taxpayer actually paid to the retirement plan prior to the tax filing deadline provided by section 404(a)(6), supra.
Plaintiff timely filed refund claims for 1968 and 1969, alleging that these additional amounts ($880,429 and $1,250,800) actually paid within the tax return deadlines for 1968 and 1969 should be credited to those years, rather than the subsequent tax years. The Internal Revenue Service denied the claims, and this suit was brought.
The parties dispute whether the two additional payments (made during the grace periods for 1968 and 1969) were for retirement contributions properly accruable in those years. We do not consider that question because we are convinced that, even if the contributions represented by those payments are deemed arguendo to have been theoretically accruable in 1968 and 1969, the payments were not in fact made "on account of’ those taxable years.
To start with section 404(a)(6) itself, that is precisely what it says — a grace-period payment is deductible "if the payment is on account of such taxable year.” The predecessor of section 404(a)(6), section 23(p)(l)(E) of the 1939 Code, established a sixty-day grace period and likewise required that the payment be "on account of such taxable year.” Revenue Act of 1942, Pub. L. No. 753, ch. 619, § 162(b), 56 Stat. 798, 865. Congress provided the grace period to allow accrual method taxpayers to compute maximum deductions, which were calculated on a percentage of employee compensation paid during the year. Because it would be difficult to calculate the precise amount of total compensation before the end of the taxable year, Congress gave accrual method taxpayers an extra sixty days. Sec Hearings before the Senate Committee on Finance on the Revenue Act of 1942, 77th Cong., 2d Sess., 465 (1942); Don E. Williams Co. v. Commissioner, 429 U.S. 569, 575-76 (1977). Although this grace period (now lengthened) affords taxpayers extra flexibility in calculating and timing their contributions, Congress still requires the contributions to be made "on account of’ the taxable year.
The Internal Revenue Service’s regulations interpreting section 404(a)(6) and its predecessor have consistently
All cases (of which we are aware) in which deduction of a grace period payment was permitted have rested on some proof that the taxpayer actually incurred or recognized the liability in the taxable year for which the deduction was sought. See, e.g., Lozano, Inc. v. Commissioner, 68 T.C. 366 (1977) (oral authorization by board of directors to take maximum deduction sufficient to fix liability); Inland Sales Co. v. United States, 40 A.F.T.R. 2d ¶ 77-5022 (N. D. Tex. 1977) (written minutes of board’s approval of contribution fixed liability); Joe Coker Pontiac, Inc. v. Commissioner, 44
Though these authorities phrase their conclusions in various ways, they all stress that the taxpayer must show (or had already shown) a link between the payment and the taxable year (other than the stark fact that the payment was made during the grace period).
Ill
In this case there is no evidence whatever — nothing in the company accounts, no corporate resolutions or records,
Plaintiff makes two responses to this lack of proof that the payments were "on account of’ 1968 and 1969. First, plaintiff stresses that section 404 alters normal accounting rules and treats the accrual basis taxpayer the same as one on the cash basis. From this plaintiff seems to infer that no more is required than mere payment of some sum within the grace period, without any indication whatever of the year to which the payment is attributable. Of course, this contention is basically opposed to the statutory language, the regulations, and the case law. As demonstrated supra, all of these sources state or imply that some proof of an incurred liability for the particular year must be shown. The Tax Court has summarily rejected a similar contention, and we do likewise. Misceramic Tile v. Commissioner, 27 T.C.M. (CCH) ¶ 28,854 at 146-47 (1968). Raybestos’ argument simply passes over the statutory requirement that, to be deductible, a grace period payment must be "on account of’ the tax year to which the grace period is attached. Even a cash-method taxpayer to whom section 404(a)(6) applies (see note 1, supra) would have to show somehow that his grace-period cash payment was "on account of’ that specific tax year, and not the later one.
Plaintiffs alternative point is that the terms of its 1968 union contracts required Raybestos Manhattan to pay a fixed and definite sum over five years, and that this is enough to prove that the two payments here involved were made "on account of’ 1968 and 1969. As explained above, under these union agreements plaintiff waived its option to modify, suspend, or terminate funding of the retirement plan for five years. Taxpayer asserts that these agreements
In a final attempt to demonstrate such an election, taxpayer refers to a 1967 resolution of the Raybestos Manhattan board, which is said to have carried over to 1968 and 1969. The board resolution, part of the initial resolution approving the retirement plan, states in pertinent part that Raybestos Manhattan:
*232 shall accrue on its books of account such additional amount as the officers, after consulting with the actuary, determine to be appropriate, and shall pay to the Trustee under the Retirement Plan as soon as practicable such accrued amount, such payment not to be made any later than the time within which the Company is permitted to file its Federal income tax returns for the calendar year 1967, or any extensions thereof * * * *
CONCLUSION OF LAW
Plaintiff is not entitled to recover and its petition is dismissed.
Section 404(a)(6) was amended in 1974 to extend the same grace period to cash basis taxpayers. Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, § 1013(c)(2), 88 Stat. 923.
The necessary facts are stated in this opinion.
A representative union contract states that notwithstanding certain provisions of the retirement plan (which made all company contributions voluntary) the company would contribute until 1973 an amount sufficient to meet the minimum standards of Article IX, set forth supra.
"Normal costs” are the expenses of a retirement plan in the current year, and are computed by estimating a percentage of current costs multiplied by the annual compensation of employees enrolled in the plan. "Initial unfunded liability” is the total liability of the plan for all past services. When Raybestos Manhattan adopted the retirement plan, the governing regulations required that a company pay "normal costs” plus interest on initial unfunded liability. Article IX of plaintiffs
It is unquestioned that Raybestos Manhattan’s contributions each constituted a valid “payment” under the statute. Cf. Don E. Williams Co. v. Commissioner, 429 U.S. 569 (1977).
In citing I.R.S. Rulings we do not intimate approval (or disapproval) of the precise requirements the Service establishes for the type and degree of proof of a liability. See note 8, infra.
Plaintiff cites various authorities, including Revenue Ruling 68-34,1968-1 Cum. Bull. 181, for the proposition that a taxpayer's financial accounting treatment does not control deductibility under section 404. This proposition is generally valid, but without some indication attributing payments to a particular tax year taxpayer fails to satisfy a requirement of proof under § 404(a)(6). Practitioners have long understood the requirement that some evidence of a liability in and payment for the particular tax year is required. See Beck, Contributions to Qualified Plans at 209.
Since no evidence was presented here, we need not determine the quantum of evidence which would suffice to demonstrate payments were made "on account of’ a particular tax year. Compare Rev. Rul. 56-366, 1956-2 Cum. Bull. 976; Rev. Rul. 71-38, 1971-1 Cum. Bull 130 with Joe Coker Pontiac, Inc. v. Commissioner, 44 T.C.M. (P-H) ¶ 75,305 at 1308 (1975); Inland Sales Co. v. United States, 40 AFTR 2d ¶ 77-5022 at 5080 (N.D. Tex. 1977).
Plaintiff also filed a refund claim relating to deduction of certain contributions to the employee retirement plan in 1967. The Service allowed this claim, and it is not before the court. The amounts deducted in 1967 differ in vital respects from the tax years now here. In 1967 the Service allowed taxpayer to deduct additional amounts which were below the total sum required to meet normal and amortization costs, as fixed by the actuary and approved in the minutes of a 1967 Board meeting. In 1968 and 1969 the Service similarly allowed deductions for the actuary’s sum of normal costs and forty-year amortization expenses. What is now in litigation is the deduction of additional amounts above the actuary’s estimate, and originally credited by taxpayer to a subsequent tax year.