The opinion of the court was delivered by: GOURLEY
This is a corporate income tax proceeding which arises out of the termination of a profit sharing trust in which the taxpayer claims a right to recover from the United States of America overpayment of corporate income tax for the fiscal year of 1950, or in the alternative for the fiscal year 1949.
The question for determination is --
The question posed has not been ruled upon by any United States District Court or Circuit Court, and necessarily raises a question of first impression.
The taxpayer is a Pennsylvania corporation and during the fiscal year 1946 executed a profit sharing trust for the benefit of its employees. In accordance with the provisions of said trust, the taxpayer made contributions during the years 1946, 1947 and 1948, and all contributions made by the taxpayer to the trust were paid by the trustee to the employees for whose benefit the plan was created.
Since the trust was terminated on February 1, 1948, the taxpayer's claim against the government is premised on the legal thesis that the excess of the amount which it was permitted to deduct in the years 1946, 1947 and 1948 should either be carried over as a deduction for the year 1950 or, in the alternative, that said amount should be permitted as a deduction for a loss arising from the worthlessness of an asset in the fiscal year 1949.
The allowance of a deduction from a gross income becomes a matter of legislative grace. A particular deduction which is claimed will be allowed only if there is a credit provision for it in the law. New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435, 54 S. Ct. 788, 78 L. Ed. 1348; John Wanamaker Philadelphia v. Com'r of Int. Revenue, 3 Cir., 139 F.2d 644.
It is necessary, therefore, to determine whether there is a provision for the deduction claimed in circumstances such as exist in this case.
Plaintiff admits that Section 29.23(p)-10 of Treasury Regulation 111, as amended, promulgated under the Internal Revenue Code of 1939 would deny it any relief since the regulation requires that contributions carried over may be deducted in a succeeding taxable year only in the event the trust or plan was in existence in said succeeding year.
In this connection, I am guided by the well established rule of law that treasury regulations are presumptively valid and must be sustained unless unreasonable and plainly inconsistent with the revenue statutes. Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 68 S. Ct. 695, 92 L. Ed. 831; United States v. Birdsall, 233 U.S. 223, 34 S. Ct. 512, 58 L. Ed. 930; United States v. Grimaud, 220 U.S. 506, 31 S. Ct. 480, 55 L. Ed. 563; Palmisano v. United States, D.C., 159 F.Supp. 98.
Plaintiff, however, advances the proposition that said treasury regulation is arbitrary, unreasonable, and not authorized by Congress, and that since said regulation was issued four months after the trust involved in this proceeding had been terminated, the same was retroactive and therefore void.
I am satisfied that the clear and unambiguous language of the statute in no way is at variance with or contradictory to the regulation. It is further my considered judgment that since the regulation merely clarifies what the language of the statute always was intended to convey, it is no more retroactive in its operation than is a judicial determination construing and applying a statute to a case in hand. Manhattan General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 56 S. Ct. 397, 80 L. Ed. 528.
Inasmuch as the trust in the instant case was liquidated during the taxable year and on July 31, 1949, there was no trust or plan in existence during the succeeding taxable years which can be said to have participants in those succeeding taxable years.
The alternative claim of the taxpayer of applying the unused contributions in excess of the amount permitted under the Internal Revenue Code to the profit sharing trust as a loss in the fiscal year ending January 31, 1949, on the theory that a loss resulted ...