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TRENTON TIMES CORP. v. UNITED STATES

July 18, 1973

Trenton Times Corporation, Plaintiff,
v.
United States of America, Defendant



The opinion of the court was delivered by: FISHER

 Plaintiff applies for review of the Internal Revenue Service refusal to deduct amounts paid by plaintiff for a group annuity contract established for its employees from plaintiff's 1964 and 1965 corporate income tax assessments. The parties have stipulated the facts and submit the matter for consideration without argument on cross-motions for summary judgment. Jurisdiction is properly alleged under 28 U.S.C. Sec. 1346, and plaintiff seeks return of the tax monies allegedly erroneously collected plus interest.

 Stipulation of Facts

 The following stipulation was entered into and filed with the Clerk of the Court.

 
"1. On May 1, 1935 plaintiff, Trenton Times Corporation, established an employer-employee contributory retirement and insurance plan which plan was funded by means of a group annuity contract issued by the Aetna Life Insurance Company. Subsequently, this plan received a favorable ruling from the Internal Revenue Service, by letter dated February 14, 1945, that it qualified under the pertinent Internal Revenue Code provisions in existence at that time.
 
2. The above plan was a Qualified Pension Plan which, under the pertinent provisions of the tax law did not require the intervention of a trust nor the presence of a trustee in order to qualify for favorable tax treatment. Thus, there was neither a trust nor a trustee which administered the plan.
 
3. Plaintiff corporation on April 17, 1964, as part of its employee benefit program set up a "Profit-Sharing Retirement Plan", which plan became effective May 1, 1964. This plan was a non-contributory plan but, like the 1935 retirement benefit plan, was funded by means of an annuity contract issued by the Aetna Life Insurance Company.
 
4. Management of plaintiff corporation considered the "Profit-Sharing Retirement Plan" as merely an adjunct to its already existent retirement plan and merely a means of increasing pension benefits previously provided for its employees, therefore, plaintiff did not believe formal approval of the "Profit-Sharing Retirement Plan" by the Internal Revenue Service was a requisite to the establishment of that plan. Furthermore, believing the "Profit-Sharing Retirement Plan" was a mere extension of benefits already established under the original retirement plan of 1935, plaintiff concluded that formal approval of the plan was not required nor did this additional plan require the establishment of a Trustee since the original retirement plan did not provide for the latter.
 
5. Pursuant to its commitments under the "Profit-Sharing Retirement Plan" as established, plaintiff corporation made contributions to that plan in the year 1964 in the sum of $47,000.00 and in the year 1965 in the sum of $50,000.00, and said contributions were paid directly to the Aetna Life Insurance Company and, thereafter, on the corporation's Federal income tax returns for the years involved deductions for the amounts stated were claimed.
 
6. Thereafter, the plaintiff corporation's tax returns for 1963 and 1964 were audited, certain disallowances were proposed, and the revenue agent's report was submitted for review.
 
This matter was then transferred to the pension plan section of the district revenue staff, and the district plan supervisor requested plaintiff submit certain documents for the purpose of determining whether the "Profit-Sharing Retirement Plan" as established qualified under the Internal Revenue Code. One of the documents requested was a copy of the Trust Agreement; since no Trustee was named and no Trust Agreement was executed, as set forth above, plaintiff was not able to comply with that request. Shortly thereafter plaintiff was informed that the District Pension Plan supervisor had disallowed its contributions to the "Profit-Sharing Retirement Plan" for the year 1964 ($47,000.00) and for the year 1965 ($50,000.00).
 
7. By letter of April 28, 1966, plaintiff requested a ruling from the Internal Revenue Service, Pension and Profit-Sharing Division, and in support thereof submitted its argument by letter and memorandum dated September 12, 1966. The District Director responded by his letter of February 17, 1967; annexed thereto copy of conference report of January 24, 1967, and ruled that the contributions made by the plaintiff corporation in the years 1964 and 1965 to its "Profit-Sharing Retirement Plan" would be disallowed on the grounds that said plan failed to qualify under Sections 401(a) or 404(a) (3) (A) of the Internal Revenue Code.
 
8. As a result of the Director's ruling with reference to the necessity of establishing a Trust Agreement and Trustee under plaintiff's "Profit-Sharing Retirement Plan", and in order to protect its future contributions to the plan, plaintiff entered into a Trust Agreement and established a Trustee on December 20, 1966. This was done despite the fact plaintiff contended no such Trust Agreement or Trustee was required. The District Director notified plaintiff on May 20, 1968, that said plan was a qualified trust under Section 401(a) and exempt under Section 501(a) under the Internal Revenue Code.
 
9. On December 23, 1969, plaintiff filed its claim for refunds of taxes paid for the years 1964 and 1965 with the Internal Revenue Service. Thereafter, on April 30, 1971, plaintiff corporation received a notification from the District Director ...

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