Time Oil Co., a Corporation v. Commissioner of Internal Revenue

294 F.2d 667 TIME OIL CO., a corporation, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. No. 16534. United States Court of Appeals Ninth Circuit. September 1, 1961. Jones, Grey, Kehoe, Hooper & Olsen, Seattle, Wash., A. R. Kehoe and Hargrave A. Garrison, Seattle, Wash., for petitioner. Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Melva M. Graney and Helen A. Buckley, Attorneys, Dept. of Justice, Washington, D. C., for respondent. Before CHAMBERS, STEPHENS and POPE, Circuit Judges. CHAMBERS, Circuit Judge. 1 Reference is here made to this court's decision in Time Oil Co. v. Commissioner, 258 F.2d 237 , decided the first time the case was here. This opinion starts from there. 2 The taxpayer almost lost its income tax deductions for its contributions to a stock bonus and profit sharing plan for its employees because of some deviations from the original written plan. However, we held the deviations were de minimis and declined to sustain the Commissioner in his contentions that the departures from plan were fatal. 3 There was a second issue in the first case: In what years were the payments deductible? This arose because notes were given by the taxpayer to the…

Reference is here made to this court’s decision in Time Oil Co. v. Commissioner, 258 F.2d 237 , decided the first time the case was here. This opinion starts from there.

The taxpayer almost lost its income tax deductions for its contributions to a stock bonus and profit sharing plan for its employees because of some deviations from the original written plan. However, we held the deviations were de minimis and declined to sustain the Commissioner in his contentions that the departures from plan were fatal.

There was a second issue in the first ease: In what years were the payments deductible? This arose because notes were given by the taxpayer to the trust in payment of its obligation to make contributions. When here before, the Commissioner contended the year of payment of a note was the year for the deduction. There is much to be said for this position, but we determined not to set up a conflict with the Third Circuit, which had held that delivery of the note fixed the time. Sachs v. Commissioner, 3 Cir., 208 F.2d 313 .

Specifically we said:

The use of the last word “discharged” has produced at least a part of the trouble. And on remand taxpayer sought to take advantage of…

(concurring).

The question before the court is whether the Tax Court acted correctly in excluding as deductible items for the year 1949 two promissory notes, representing contributions to a stock bonus and profit sharing trust.

The first note in question, for $30,466.-86, was delivered to the trustee in May of 1948 and presents no problem. Our *671 first opinion in this matter decided, inter alia, that the delivery of the note determined the date in which the contribution was deemed to be paid. Accordingly, the Tax Court correctly determined that as to this note 1948 was the proper year in which the deduction should have been taken.

The second note presents a real issue. This note was delivered to the trustee on February 28, 1949. Section 23 (p) (1), Internal Revenue Code of 1939, provides:

Limitations then follow under subparagraphs (A), (B), (C), and (D), each, inter alia, requiring actual payment during the taxable year. There then follows subparagraph (E):

Treasury Regulations 111, promulgated under the Internal Revenue Code of 1939, Section 29.23(p)-l, states in part:

There is at once apparent an ambiguity as between the statute and the regulation. While the former is…

(dissenting).

My disagreement is upon a point neither mentioned nor discussed by the Tax Court. It does not concern the 1948 ($30,466.86) note. But with respect to the $66,342.82 note, which was delivered in February, 1949, if the statute should be construed as I think it should, the admittedly unfair and unjust result reached in the opinion here would at least in part be avoided.

The section here in question reads: “(E) For the purposes of subparagraphs (A), (B), and (C), a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made within sixty days after the close of the taxable year of accrual.” (1939 I.R.C., 26 U.S.C. § 23 (p) (1) (E).)

The Tax Court assumed, without bothering to discuss the matter, that this section required and made it mandatory, that the taxpayer, which was on the accrual basis, must treat the contribution as having been made on the last day of the preceding year simply because it was made within 60 days after the taxable year.

Petitioner asserts that the quoted provision is permissive and not mandatory. If petitioner is right in this, it…