TAXATION-FEDERAL INCOME TAX-DEDUCTIBILITY OF CONTRIBUTIONS TO PROFIT-SHARING TRUSTS

Plaintiff corporation set up a profit sharing trust for the benefit of its employees as authorized under section 165(a) of the Internal Revenue Code. The plan for the trust, as approved by the Treasury, provided that plaintiff should contribute annually an amount equal to 15 % of net income, as defined, not to exceed 15% of basic salary or wages of all eligible participating employees. For the tax year 1944 plaintiff claimed deductions under section 23(p)(1)(C) for an amount equal to 15% of the total participating payroll, which is actually the allowable maximum, but which in this case exceeded 15% of the net income figure. The Collector of Internal Revenue reduced the allowable deduction to the latter amount and declared a deficiency, which the plaintiff paid.

This action was brought in the federal district court to secure a refund. Held, the amount by which the contribution exceeded 15% of net profits was not authorized by the approved plan and did not constitute an allowable deduction as an ordinary and necessary business expense under the Internal Revenue Code. Gross-Given Mfg. Co.v. Kelm, Collector of Internal Revenue, (D.C. Minn.

1951) 99 F. Supp. 144.