The opinion of the court was delivered by: DOOLING
MEMORANDUM INCORPORATING FINDINGS OF FACT AND ORDER
Plaintiff, the widow of Hy Pomerance, who died on December 21, 1958, sues to recover income taxes of the years 1959, 1960 and 1961 which she paid in respect of amounts received by her in those years from Styl-Rite Optics, Inc., the corporation of which her deceased husband had been president, and in which he had been the moving spirit. Plaintiff received $35,000 in 1959, of which $30,000 was treated by defendant as taxable income; she received $15,000 in 1960, all of which was treated as taxable income; and she received $6,900 in 1961, all of which was treated as taxable income. Timely claims for refund were filed and disallowed. The present action followed. It was stipulated that the case was to be tried by jury, but later, at the time of trial, both sides agreed to proceed without jury.
In the last years of Hy Pomerance's life his salary with Styl-Rite was at the rate of $50,000 a year. Associated with him in the management of the company were his brothers Sam and Manny Pomerance. The three brothers were officers and directors of the corporation. The corporation's accountants were Henry Brout & Company.
Hy Pomerance was 48 years old when he died of a heart ailment, after some earlier heart problems from which he had apparently recovered.
Early in the year 1958 the three brothers had commenced to talk, at Hy Pomerance's instance, about setting up some kind of pension plan for valued employees. While it is referred to constantly as a "pension plan" it appears that from the earliest discussions the plan was expected also to incorporate some sort of post mortem payments. Henry Brout testified that the general idea was that they ought to pay the widow of a valued employee about a year's salary in the form of a compensation in contemplation of the decedent's past service to the corporation. While there is a possible confusion, and Mr. Brout's testimony could easily be interpreted as having dealt solely with post mortem payments to valued employees' widows, the testimony of Manny Pomerance was throughout in terms of pension planning with death benefits an element in the complete planning. It emerges clearly enough that in 1958 before Hy Pomerance's death there was genuine discussion about setting up a pension plan and having post mortem payments to valued employees' widows, that the principals in the corporation had made up their minds to follow that course, and that they had discussed it with persons outside the company, such as Henry Brout, but had not formulated a definitive plan or actually commenced work on implementing the determination. General ideas of the range of payments had been formulated, but it cannot be, and is not, found that the "formula" had arrived at precision.
Some time after Hy Pomerance's death the surviving brothers as corporate managers decided to pay Mrs. Pomerance, the plaintiff, about $35,000 for the calendar year 1959. Mrs. Pomerance was not in need. Manny Pomerance understood that she had been well-provided for by her deceased husband. The payments to her were not to relieve a condition of indigence or necessity; they were not compassionate payments. The payments of each year were made in periodical checks.
Mrs. Pomerance came to the Styl-Rite office for some months after her husband's death, and did a certain amount of undefined office work, but it is not suggested that she earned the $35,000 paid her during 1959 or that there was any connection between the work that she did and the amounts that she received.
Hy Pomerance was paid all that was owed to him as an officer of the corporation for services that he rendered to it up through the date of his death. Neither he nor his estate had any legal right to make any further claim upon Styl-Rite for additional compensation.
No earlier payments to the widow or other survivors of key men in the corporation had ever been made. However, there was no evidence that there had ever been a "key man" death before the death of Hy Pomerance.
On September 16, 1959, and apparently some very considerable time after the payments to Mrs. Pomerance had commenced, at a joint meeting of the directors and stockholders of Styl-Rite at which the estate of Hy Pomerance was represented by its executor, a new president was elected. He called to the attention of the meeting that the officers had granted to Hy Pomerance's widow "a pension in the amount of $35,000 for the year commencing January 1st, 1959." That course of action is recited in the minutes as having been unanimously approved and ratified by the stockholders and directors. On the minutes is pencilled at the end of the quoted sentence words which appear to read "and 15,000 for the year beginning Jan. 1, 1960."
At a joint meeting of stockholders and directors held just a year later, on September 16, 1960, at which Mrs. Pomerance was present as a director and as representing, along with Sam Pomerance, her husband's estate, it was stated by the chairman of the meeting that "the officers of the corporation granted to the widow of the late Hy Pomerance a pension in the sum of $15,000 for the calendar year 1960." This course of action was recited in the minutes as unanimously approved and ratified by the stockholders and directors.
After Hy Pomerance's death work was done on the preparation of a pension plan, but not until after September 16, 1959 was it completed, and an agreement for a pension plan signed. The formal action of the directors authorizing the putting into effect of the pension plan came on September 25, 1959, about nine days after the joint stockholder-director meeting at which the 1959 payment of $35,000 to Mrs. Pomerance was ratified.
It has been testified that the payments made to Mrs. Pomerance in aggregate would not differ very greatly from the amount that would have been received as a death benefit had the plan as finally adopted been put into effect before Hy Pomerance died. The aggregate of the payments to Mrs. Pomerance was either $56,900 as indicated in her returns of income tax, or $56,413.90, as apparently reflected in the returns of tax of the corporation. Under the Pension Trust Provisions as that instrument was adopted in 1959 Hy Pomerance's "pension" would have been about $6,960 a year, and he would have been entitled, ...