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Willmark Service System Inc. v. Commissioner of Internal Revenue

decided: October 26, 1966.

WILLMARK SERVICE SYSTEM, INC., PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT



Smith, Hays and Feinberg, Circuit Judges.

Author: Hays

HAYS, Circuit Judge.

Willmark Service System, Inc. petitions for review of a decision of the Tax Court. The memorandum findings of fact and opinion of the Tax Court are not officially reported. We affirm the determination of the Tax Court.

The issue on this petition is whether the taxpayer, a family corporation, is entitled to an income tax deduction of $18,444 for the fiscal year ending December 31, 1959, for payments made to Selma Bernstein, widow of one of the co-founders of the corporation. Petitioner claims that this deduction was proper under Sections 404(a)(5) and 162 of the Internal Revenue Code of 1954. These sections provide:

§ 404. Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferredpayment plan.

(a) General rule.

If contributions are paid by an employer to or under a stock bonus, pension, profitsharing, 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 section 162 (relating to trade or business expenses) or section 212 (relating to expenses for the production of income); but, if they satisfy the conditions of either of such sections, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year;

(5) Other plans.

In the taxable year when paid, if the plan is not one included in paragraph (1), (2), or (3), 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.*fn1

§ 162. Trade or business expenses.

(a) In General.

There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business including --

(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;

The Commissioner relies on the Tax Court's finding that the payments did not meet the statutory requirements for deductibility because they did not represent deferred compensation ...


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