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January 8, 1976

Cyclops Corporation, a corporation, Plaintiff
United States of America, Defendant

Scalera, District Judge.

The opinion of the court was delivered by: SCALERA

SCALERA, District Judge:

The plaintiff, Cyclops Corporation, seeks judgment against the defendant, United States, for the refund of corporation income taxes for the calendar years 1962, 1963, 1964, 1965 and 1966, plus interest as provided by law. The issue is whether plaintiff, as an accrual basis taxpayer, is entitled to a current deduction in the calendar year in which it incurred obligations variously designated as contingent, delayed, and additional delayed obligations to contribute to trusts created under Supplemental Unemployment Benefit Plans. The Internal Revenue Service has disallowed all claimed deductions by plaintiff for the delayed obligations under the SUB plan and has allowed only those amounts which were actually paid into the SUB trusts.


 The complaint containing seven counts seeks a refund of corporate income taxes paid by plaintiff over a period of five years. The government's answer is a simple denial of the allegations of the complaint. A stipulation of facts, including exhibits, was filed, which stipulation contained most of the facts in this case. Pretrial statements were filed and a formal pretrial conference was held in addition to status conferences and informal pretrial conferences. A non-jury trial was held, at which testimony was taken and the record completed. Following the filing of the transcript of the trial, the parties filed briefs and, in addition, the plaintiff filed a reply brief. The parties also filed proposed conclusions of law and statements of fact based upon the stipulation and testimony.

 In the appendix hereto is a statement of facts outlining in detail the provisions of the plans, the manner in which they operated, and the relevant facts of this controversy. The statement of facts, together with this opinion, shall constitute findings of fact and conclusions of law in accordance with Fed. R. Civ. P. 52(a), 28 U.S.C.

 This case involves three separate corporations, three identical supplemental unemployment benefit plans, and the same issues which arose out of the same industry-wide supplemental unemployment benefit plan considered by the Tax Court of the United States in Lukens Steel Co. v. Commissioner, 52 T.C. 764 (1969), and by the Court of Appeals for the Third Circuit in Lukens Steel Co. v. Commissioner, 442 F.2d 1131 (3d Cir. 1971), which affirmed the Tax Court.

 As in the Lukens case, Cyclops, and its predecessor companies, agreed with the Steelworkers Union to establish a supplemental unemployment benefit plan, the purpose of which was, as its title indicates, to supplement state unemployment benefits available to laid-off employees. The obligation of Cyclops under the plans consisted of current and deferred liabilities.

 Under the contract between Cyclops and the Union, Cyclops, which has been consistently an accrual basis taxpayer, agreed to make payments to trust funds to provide supplemental unemployment benefit payments to its employees. A part of the payments to the trust was to be made in cash and a part was to be made at future times as the financial needs of the fund required and as specified by the various provisions of the fund. The amount of all of the payments to be made was determined by events occurring during the taxable years. The contracts in existence during the taxable years provided that any excess of the delayed and/or deferred payment obligations to the trusts over the actual amounts paid out to employees by the trusts should be used for other benefits to the employees and in no way could inure to the benefit of the employer.

 All of the deferred and delayed obligations were accrued by the plaintiff as business expenses and deducted by it in its returns for the years in which such credits were made. The amounts credited in this fashion during the taxable years would be paid ultimately to the employees under the provisions of the contract creating the trusts. There was, however, uncertainty during the taxable years with regard to the identity of the ultimate recipients of the benefits and the time of such payments.

 The plaintiff claimed for each of the five years in suit as deductions its total obligations to the trusts, including its cash obligations and any deferred, delayed and future obligations under the plan. The plaintiff's position is that these are ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954 (26 U.S.C.). The government's position is that the only proper deductions are those amounts which Cyclops paid into the trusts during each year in suit and that all other obligations, no matter how designated, are not deductible and therefore properly were disallowed.


 There is no dispute as to the basic legal principles involved in this case. Section 162(a) of the Internal Revenue Code of 1954, 26 U.S.C., permits the taxpayer to deduct an ordinary and necessary business expense.

 There is no dispute as to the general rule for determining the particular taxable year in which a taxpayer is entitled to take a deduction. Section 461(a) of the Internal Revenue Code provides that deductions "shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income." Further, the treasury regulations provide that under the accrual method of accounting, deductions are allowable "for the taxable year in which all the events have occurred which determine the fact of the liability and the amount thereof can be determined with reasonable accuracy." Treas. Reg. 1.461-1(a)(2), 26 C.F.R. This Regulation reflects the general rule, the "all events" test, which determines when an allowable deduction may be taken. This rule and its corollary, that the expenses are deductible only in the taxable year in which the absolute and unconditional obligation arises even though payment is not due until a subsequent year, has been repeatedly restated and approved. United States v. Anderson, 269 U.S. 422, 46 S. Ct. 131, 70 L. Ed. 347 (1926); Aluminum Castings Co. v. Routzahn, 282 U.S. 92, 51 S. Ct. 11, 75 L. Ed. 234 (1930).


 There is no disagreement between the parties that the SUB plan provisions and factual background involved in the Lukens Steel Company case are virtually identical to the provisions and factual background at issue in this case. Defendant concedes that the deductibility of obligations similar to the plaintiff's obligations in this case was considered and was allowed in Lukens.

 The plaintiff submits that the Third Circuit's affirmance of the Tax Court decision is binding upon the court in this case. The plaintiff points out that the only substantive difference between the Lukens Company 1962 SUB plan, as described by the Tax Court in its opinion, 52 T.C. 764, and the Cyclops revised SUB plans is that the Lukens plan reflects a 52-53 week corporate fiscal year ending on the Saturday nearest December 31, whereas Cyclops reports on a calendar year basis. As the plaintiff points out, this is a very minor difference.

 The Court of Appeals held that Lukens was entitled to deduct the monthly obligation under its 1962 SUB plan, including cash contributions and delayed obligations, in the taxable year incurred because sufficient events had occurred in that year "to fix the obligation to pay this liability in the form of cash." Id. at 1134. The court concluded that the deductible monthly obligation included the amount of the contingent liability carry-forward from Lukens earlier SUB plan to its 1962 SUB plan and that the entire amount thereof was properly accruable in its fiscal year 1962, being the year in which the contingent liability became non-cancellable.

 It should be noted that the parties involved here have stipulated that the express terms of each of the revised SUB plans provide for the carry-forward of the full amount of the "contingent liability" under the three earlier SUB plans as part of the delayed contribution element of the monthly obligation on the respective effective dates of the revised SUB plans (i.e., July 1, 1962 in the case of Universal-Cyclops, and February 1, 1963 in the case of Empire-Reeves and Reeves Steel).

 The Court of Appeals in Lukens rejected the Commissioner's arguments that the liability for the delayed obligation was wholly contingent, rather than fixed and certain, and therefore was not accruable until actually paid into the Lukens SUB trust.

 The decisions of the United States Courts of Appeals, of course, are binding upon the District Courts within such Circuit. As Judge Weber said in Minnich v. Nabuda, 336 F. Supp. 769 (W.D. Pa. 1972), while he "believes most strongly" in an opposite point of law, the District Court is nevertheless "bound by the current holding of this circuit." Id. at 770. In Thompson v. United States, 148 F. Supp. 910 (E.D. Pa. 1957), involving a federal estate tax refund action, the District Court indicated that a "similar fact situation to that here involved" was recently considered in the Third Circuit, and that "that decision controls this case." Id. at 913. See also Shoffner v. Glenshaw Glass Co., 173 F. Supp. 850, 854-855 (W.D. Pa. 1959), and Shupe v. Pennsylvania R. Co., 19 F.R.D. 144, 145 (W.D. Pa. 1956).

 The plaintiff and defendant have stipulated in this case that the 1962 revised SUB plans as adopted by Universal-Cyclops, Empire-Reeves, and Reeves Steel were substantially in the same form as the 1962 SUB plan developed by the steel industry and Union negotiators during the 1962 steel industry labor negotiations and adopted by the major steel companies. The 1962 SUB plan litigated in Lukens was also in the same form developed in the 1962 steel industry negotiations and adopted by the major steel companies. 52 T.C. at 766-767. The Tax Court's findings of fact in Lukens, 52 T.C. at 765-781, are virtually identical to the stipulation of facts between the parties in this case aside from the amounts of the monthly obligations.

 In summary, the government's effort to persuade this court to either consider Lukens, supra, to be in error or to distinguish Lukens from this case are not successful.


 The government argues that, while it is "fully aware that the deductibility of obligations similar to the plaintiff's was considered and allowed" in the Lukens case, both the Tax Court and the Appellate Court were "in error in deciding Lukens, not because of any misunderstanding regarding the principles controlling the timing of deductions under section 461 of the Code, but rather because the courts did not first analyze under section 162 the nature of the obligations for which the taxpayer was seeking a deduction." *fn1"

 This argument of the government appears to be an effort to distinguish between the obligation to pay money to the trusts and an obligation to pay the benefits provided under the SUB plans directly to the employee. As the government states:


. . . plaintiff's undertaking to pay money to a trust are (sic) not, when considered in vaccuo, ordinary and necessary business expenses. *fn2"

 In argument at various times in this case the government labeled this proposition as the distinction that must be made between the form, i.e., the trust, and the substance, i.e., the obligation to pay the employee benefits.

  The government has presented no authority to support the contention that the obligation to pay money to an entity such as a trust, in itself would not properly be a deductible expense under section 162. This argument is not persuasive as it appears, as plaintiff has argued, that such a position amounts to an attack on the accrual method of accounting.


 The government, in addition to its claim that the Lukens decisions were in error, attempts to distinguish this case from Lukens in two respects.

 The first effort to distinguish Lukens from this case would be best set forth by quoting from the government's brief: *fn3"


The defendant does not deny that the plaintiff has, for the purpose of paying specified employee benefits, committed itself to establish unfunded liability accounts in amounts determinable within the year for which deductions are sought. The defendant also acknowledges that it was this very obligation for which deductions were allowed in Lukens, supra, but the Court should note that this was only after the Tax Court had concluded . . . that such obligation "does not depend upon an estimate of anticipated future expenditures." Whether such a conclusion be considered a finding of fact or a conclusion of law, it is totally devoid of support in this case. . .. Without this intermediate finding, the ultimate conclusion of the Court is simply not helpful to the resolution of the matter in the instant case.

 The government does not indicate what the quoted phrase from the Tax Court's 23-page opinion in Lukens meant in connection with the Tax Court's decision. The plaintiff notes that the Court of Appeals in its opinion in Lukens ignored the statement of the Tax Court.

 It is clear that in this case the accrual of the monthly obligation was fixed by the terms of the SUB plans themselves and did not depend on estimated or anticipated future expenditures. Cyclops has incurred a fixed and absolute liability under the SUB plans. The future disbursement of benefits under those plans does not alter the obligation.

 The government secondly attempts to distinguish this case from Lukens by arguing that in Lukens the (courts) found that the obligation once incurred could not be extinguished, reduced, or cancelled, or in any other manner revert to the benefit of the company. The government suggests that the opposite must be found in this case because in 1968 Cyclops by agreement with the Union cancelled $183,000 of the obligations accumulated during the years under consideration and indeed claimed a deduction on this amount.

 The provisions of the industry-wide SUB plan and S & V plan which give rise to the "evaporation" in this case were before the Court of Appeals in Lukens, supra. These provisions were summarized in paragraph 72 of the stipulation filed in this case (and are described in the appendix to this opinion) as follows:


Under Section 15.0 of the 1964 Universal-Cyclops S & V Plan, Universal-Cyclops incurred a liability to pay 12.5 cents per hour worked to the FAA. . . . Under Section 15.2b of said S & V Plan, the maximum hourly accrual to the FAA was 15.625 cents per hour worked, 3.125 cents of which was in the form of spillover from the 1962 Universal-Cyclops SUB plan. . . . However, Section 15.9 of said S & V Plan provided for a maximum cumulative monthly accrual of additional delayed contributions, including splashback, in the amount of 3.5 cents per hour worked, less any spillovers to the said S & V Plan. The difference between the maximum available "spillover" of 4.5 cents per hour worked set forth in Section 15.1 of the said S & V Plan and said maximum monthly accrual of 3.5 cents as set forth in Section 15.9a of the said S & V Plan was commonly referred to as "evaporation."

 Notwithstanding the 3.5 cent limitation in the S & V plan, the maximum 4.5 cent SUB accrual under the appendix to the SUB plan continued in full force and effect. Under these provisions, the full amount of the additional delayed contribution (up to 4.5 cents) continued to be incurred without regard to the S & V plan limitations. During each of the years from 1964 through 1967, plaintiff accrued and deducted the additional delayed contribution required under the 1962 SUB plan. Once a fixed and absolute obligation of the plaintiff, the additional delayed contribution (including the amount ultimately labeled "evaporation") could only be used for the payment of unemployment benefits or possible transfer in future years to the S & V plan if needed to pay S & V benefits.

 The plaintiff, consistently having utilized the accrual method of accounting, was required to accrue and deduct its full SUB liability in each of the calendar years in which it was incurred; otherwise, its income would be distorted. As stated by the Supreme Court in United States v. Consolidated Edison Co., 366 U.S. 380, 384-385, 81 S. Ct. 1326, 6 L. Ed. 2d 356 (1961):


It is settled that each "taxable year" must be treated as a separate unit, and all items . . . must be reflected in terms of their posture at the close of such year. . . . And the parties agree that, under the applicable federal statutes, . . . neither the Government nor an accrual-basis taxpayer may cause an item to be deducted in a year other than the one in which it accrued.


(Citations and footnotes omitted).

 The same rule had been stated earlier by the Supreme Court in Security Flour Mills Co. v. Comm'r, 321 U.S. 281, 285-286, 64 S. Ct. 596, 88 L. Ed. 725 (1944):


. . . [The] well understood and consistently applied doctrine that cash receipts or matured accounts due on the one hand, and cash payments or accrued definite obligations on the other, should not be taken out of the annual accounting system and, for the benefit of the Government or the taxpayer, treated on a basis which is neither a cash basis nor an accrual basis, because so to do would, in a given instance, work a supposedly more equitable result to the Government or to the taxpayer.

 Under this authority, the plaintiff did accrue and deduct its full SUB liability under the plans because "all events" had accrued in each of the four years to establish and fix the amount of that liability.

 An item properly accrued under the "all events" test may in some later year, because of changed circumstances, lose its character as a fixed and absolute liability. In such a case, an accrual basis taxpayer is required to include the item in income in the later year to the extent it had received an earlier tax benefit. See Regulations, ยง 1.111-1(a), 26 C.F.R.

 This occurred in the case of the cancellation of the "evaporation" in 1968. The Union and Cyclops agreed in 1968 that the 1 cent differential (which could produce "evaporation" under certain circumstances) should not accrue thereafter as an additional delayed contribution in light of the provisions of the 1964 S & V plan, and, further, agreed to cancel the "evaporation" amount which had already built up in the amount of $183,000. *fn4" This action by the plaintiff and the Union in 1968 by separate and subsequent agreement in no measure affects the proper accruability of the full SUB liability incurred under the plans in earlier years.

 That the accrual of a fixed and certain liability in one taxable year is not altered by changes occurring in a subsequent taxable year was emphasized in Rath Packing Co. v. Bacon, 255 F. Supp. 809 (S.D. Iowa 1966). The company and union had initially agreed to establish a committee to study certain problems in connection with the expenditure of moneys being accrued in an automation fund. In a later year, the company and union agreed that the committee should not be appointed, but it was held nevertheless that this subsequent event did not alter the fixed and absolute liability which existed under the labor agreement in the earlier year of accrual. The court rejected the same argument now being advanced by the government in this case by stating that:


. . . [The] subsequent turn of events did not affect the liability incurred by the taxpayer to contribute to the Fund during the years in question. The taxpayer's obligation to establish the Fund was fixed by the contract. The deductions must be viewed in light of the circumstances existing when the contract obligation was incurred. Id. at 812.

 That same result was also reached recently by the Commissioner in Rev. Rul. 72-489, 1972-2 Cum. Bull. 89, involving deductions for contributions to an industry-wide wage supplementation plan. Under the formula used in that plan for calculating employer costs, certain distortions of the true employer cost could occur. These true costs did not become known, however, until after the end of the calendar year. Thus, in any given year an accrual basis employer might have deducted more than its true liability. The Commissioner ruled that the events which occurred in a subsequent taxable year did not affect the earlier accrual and, further, stated that:


In instances where other employers received amounts from the administrator representing their incurred costs under the Plan that is in excess of their respective pro rata share of the total industry cost, such amounts, to the extent that a tax benefit was received in a prior taxable year, are includable in their gross income in the year of recovery.


 The government next argues that "all the events which establish a deductible liability with certainty have not occurred" in this case. *fn5" The government maintains that although the plaintiff has committed itself to pay particular employee benefits under the terms of the SUB plans in future years, there is no certainty that the events giving rise to the payment of the benefits, "i.e., individuals in the continuous employ of the plaintiff for at least two years being laid off during periods of total or partial unemployment, will occur." *fn6"

 In support of this argument, the defendant cites Brown v. Helvering, 291 U.S. 193, 54 S. Ct. 356, 78 L. Ed. 725 (1934), in which the Supreme Court denied a deduction for amounts which the taxpayer would be required to pay if and when any of its insurance policies were cancelled, the rationale of the court being that there was not a proper deduction because the liability for expected future cancellations was not fixed and absolute. The facts of Brown are not similar to the facts of this case.

 In Lukens, the Court of Appeals found that sufficient events occurred during the years in question to make the delayed obligation absolute and irrevocable. The court discussed several reasons for its decision, all of which are equally germane to this action.

 First, the court looked to the provisions of the 1962 SUB plan which determine the fact and amount of the employer's liability to make contributions into the SUB trusts. These provisions state that it is the rendition of services, hour by hour, by the employees represented by the Union which gives rise to the obligation and determines its amount. By virtue of these provisions, the court stated at page 1134 that: "once earned, the money was committed to inure to the benefit of the eligible members of the Steelworkers Union" and further stated at page 1135 that: "At the end of [Lukens'] fiscal year, the amount of liability is determined by events which happened during the year."

 Plaintiff's liability, as was Lukens', for the monthly obligation incurred under the revised SUB plans, was simply one of several elements in its overall hourly wage cost. In reality, the 9.5 cents maximum obligation per hour worked is no different than the basic hourly wage paid to employees or any of the other fringe benefits provided under the basic labor agreement. Upon the completion of one hour's work, the plaintiff became absolutely and unconditionally committed to expend the full amount of the monthly obligation incurred, without any distinction between cash contribution or delayed obligation, for the sole and exclusive benefit of its employees. The SUB plan in no manner conditions this absolute commitment on employee layoffs or any other event.

 After initially determining that the performance of services by the eligible employees triggered the liability and amount of the liability, the Court of Appeals next determined that the liability once incurred could not be cancelled. The court noted the non-cancellability feature of the delayed obligation on page 1134: "It was not possible for Lukens to cancel the contingent liability account without paying it to the Union." It then noted that the delayed obligation could not be cancelled even in the event of termination of the SUB plan or of shut-down of Lukens' operations:


The amount credited to the contingent liability would always be potentially available to Lukens' eligible employees. In no event could the contingent liability be cancelled by Lukens, actually it was the latter's fixed and absolute liability and the only uncertainty pertaining to it was the time of payment. Id. at 1135.

 The express and unambiguous provisions of the 1962 SUB plan provide that upon termination of the plan, all the assets in the trust funds, including the delayed obligation, shall be used until exhausted to pay unemployment benefits to employees. In the remote chance that the trust funds would not be used to pay unemployment benefits, the funds would be used in a manner designed to promote the purposes of the plan. Moreover, each of the trust agreements between Universal-Cyclops, Empire-Reeves, and Reeves Steel and the respective corporate trustees provides that none of the assets of the trust funds shall at any time be used for, or diverted to, purposes other than for the exclusive benefit of employees and their beneficiaries under the plan.

 Vincent L. Matera, one of the principal negotiators, drafters and interpreters of the SUB plans since their inception in 1956, testified that it was intended that the 1962 settlement agreement was to provide explicitly that all the contingent liabilities would become non-cancellable under any and all future circumstances.


 The government argues that the plaintiff's obligations to provide for specified employee benefits have not been determined with reasonable accuracy. In elaborating upon this point, the government assumes for the sake of argument that the plaintiff's commitment to contribute funds for the benefits specified in the SUB plans is certain. The government, however, urges that the plaintiff, to qualify for the deduction, must in addition establish that the amount of such commitment can and has been determined with reasonable accuracy.

 The government, in support of its proposition, asserts that the SUB plans were so structured as to create a built-in reserve. It contends that the $488,975.60 of contingent liability carried forward in 1962 under the revised plan was intended initially to provide this reserve. The government concludes that because the reserve's continuing existence was necessary to insure the desired operation of the plans, i.e., the payment of 100 percent of benefits, the amount of the reserve was never intended to be paid out.

 The government attempts to show by a table in its brief the pay-out of the contingent liability carry-forward under the 1962 Universal-Cyclops SUB plan. It notes that this table indicates that the annual amount of plaintiff's obligation is more than sufficient, matched to the actual needs of the employees' trusts, to avoid any significant resort to the initially assumed reserve.

 Finally, the government argues that the relationship between the delayed contribution and the additional delayed contribution is evidence that the accrual of the additional delayed contribution was excessive and beyond what could be considered a reasonable estimate of anticipated expenses.

 However, as the plaintiff has correctly pointed out, the 1962 carry-forward of the contingent liability was before both the Tax Court and the Court of Appeals in Lukens, and explicitly accepted as part of the delayed contribution. And, as settled in Lukens, the monthly obligation was properly accruable and deductible under section 162 of the Code because it was a fixed and certain liability, rather than a mere estimate of anticipated expenses.


 The next proposition advanced by the government is that "the facts existent at the time of accrual do not establish that it was probable and that the parties anticipated that the obligations would be paid in a reasonable period of time." *fn7"

 The government in this portion of its argument noted that in Lukens there was evidence to the effect that the parties reasonably anticipated that the money represented by the liability accounts would be paid out in a relatively short time. The government maintains that there is no evidence in this case to support a finding similar to that of the Lukens courts.

 The government is inaccurate. The Court of Appeals for the Third Circuit held in Lukens that the taxpayer could accrue the delayed obligation in the year incurred even though the date of payment of the unemployment benefits was not definite. Furthermore, it has been uniformly held that an uncertain date of payment of an accrued liability does not materially affect the application of the "all events" test of United States v. Anderson, supra. Before Lukens, the principle that a fixed obligation is currently accruable even though the ultimate date of payment is indeterminate most recently received expression in Washington Post Co. v. United States, 186 Ct. Cl. 528, 405 F.2d 1279 (1969), and in Rath Packing Co. v. Bacon, 255 F. Supp. 809 (S.D. Iowa 1966). *fn8"

  There are several cases holding that an accrual basis taxpayer need not have even a reasonable expectation at the time of the liability's accrual that the liability will in fact be paid. Keebey's Inc. v. Paschal, 188 F.2d 113 (8th Cir. 1951); Grand Avenue Motor Co. v. United States, 124 F. Supp. 423 (D.C. Minn. 1954); and Jenkins Wright Co., Inc., B.T.A. Memo., (1942). It is, of course, now beyond question that mere uncertainty as to the time of the payment is immaterial under the "all events" test. The 1962 SUB plan was designed to provide for a payment of the delayed obligation within a reasonable time after accrual and plaintiff's delayed obligation under the 1962 revised SUB plans actually was paid out within a few years of its accrual.

 The Court of Appeals in Lukens focused on the substance of the matter. The court examined the negotiation history of the 1962 SUB plan and the actual plan provisions to determine the intention and expectation of the companies respecting the use of the delayed obligation.

 The court noted that the 1962 SUB plan financing provisions were carefully worked out on the basis of a comprehensive statistical analysis of relevant cost factors and unemployment experience.


The cost of funding the plan was not arbitrarily determined, a group of experts on economics and statistics was selected by the steel companies and the Union to deal with the problem. In the light of their analysis, the negotiators concluded that a contribution rate of 9.5 cents per hour would be required to provide the agreed upon SUB Plan benefits. The amount actually disbursed to the Trust Fund in cash and immediately available for distribution was less than one half of the amount the experts felt was needed, the balance was to be in the contingent liability account. As a result of this arrangement it was anticipated that the Plan would be funded exclusively with contingent liability within a few years after it was in effect . . ..


The SUB Plan was designed so that even if the experts were wrong, and the contingent liability was not needed, the remaining assets including contingent liability were to be used to pay benefits to Lukens' eligible employees, either at the termination of the Plan or of the Company. The amount credited to the contingent liability would always be potentially available to Lukens' eligible employees. Id. at 1134.

 From the stipulation of facts entered into by the parties in this case, including comprehensive and detailed schedules showing essentially all accruals by Cyclops under the revised SUB plan and all payments from the SUB trusts in the form of unemployment benefits, and further showing the computation, month by month, of the derivation of the accruals for the monthly obligation with references to the applicable sections of the plan itself, little more needs to be said concerning the virtual certainty of full payment of the delayed obligation to eligible employees within a reasonable period of time.

 A brief summary of the 1962 labor negotiations and the relevant portions of the 1962 SUB plan in the appendix indicates the overwhelming nature of the evidence relating to the reasonableness of the period of payments.

 The parties have stipulated that Cyclops, in accordance with the accepted practice in the industry, had no practical alternative but to accept the terms of the 1962 SUB plan which were negotiated by the major steel companies and the Union. Plaintiff had maintained a record of its own layoff experience since at least 1956 following the original adoption of the SUB plan and regularly reported the relevant data to the Union; was privy to the proposals under consideration in the 1962 joint negotiations and most certainly was cognizant of the cyclical nature of unemployment in the steel industry by virtue of its substantial payments of unemployment benefits between 1956 and 1962 under the 1956 SUB plan. Further, indicating its cognizance of absolute liability, plaintiff consistently carried its entire unpaid delayed obligation as an accrued expense and/or accrued liability on its books of account, in its published financial statements and in reports filed with the Securities and Exchange Commission. See Ohmer Register Co. v. Comm'r, 131 F.2d 682 (6th Cir. 1942).

 The Court of Appeals said in Lukens that it was anticipated that the delayed obligation would be paid in a reasonable period of time. This statement was based on a finding by the Tax Court that "Lukens intended, and reasonably expected, that its entire contingent liability under the 1962 SUB plan as in effect during the years at issue would be paid." 52 T.C. at 781. The Tax Court made a further finding, which the Court of Appeals cited in its opinion at page 1134, that the cash assets of the Lukens SUB trust were entirely exhausted as of December 31, 1963 through the payment of unemployment benefits and that any further payments from the trust would be financed from the "Contingent Liability" account. 52 T.C. at 778, 780.

 The Tax Court in its opinion said that both Lukens and the union "reasonably anticipated that the amounts credited by petitioner to the plan as contingent liabilities during the taxable years would be required, on a 'first-in first-out' approach, to be paid by the petitioner to the trust within a few years." 52 T.C. at 785.

 Chief Judge Hastie, concurring in Lukens, stated:


The Tax Court found that it was probable and was reasonably anticipated by the parties that the sums the taxpayer irretrievably committed to the Supplemental Unemployment Benefit Fund during the taxable years would have to be paid out within a relatively short time that could be estimated approximately. That finding makes it unnecessary to decide whether sums committed to such a fund as this are then immediately deductible as an accrued business expense if the time of future disbursement is entirely speculative and is as likely to occur decades hence as in the near future. Yet the opinion of the Court seems broad enough to cover that situation. I prefer not to express any opinion whether an immediate deduction would have been allowable in such a case. Id. at 1135-36.

 In this case, even the more stringent test suggested by Judge Hastie's concurring opinion is satisfied. Plaintiff's pay-outs cannot occur "decades hence" *fn9" since a substantial part of the delayed obligation has already been paid by plaintiff in the form of unemployment and related benefits.

 This case involves five calendar years, (1962 through 1966) and another six years elapsed before the institution of this action in December 1972, hence it is not necessary to speculate on the length of the deferral period. The evidence of what has happened since 1962 is in the record.

 First, the parties have stipulated that beginning with the month of September 1962, all unemployment benefits payable thereafter by Universal-Cyclops under the 1962 Universal-Cyclops SUB plan from its SUB trust were financed solely through the delayed obligation and none was financed through current contributions. (Stip. X 28.) Moreover, the parties have stipulated that all unemployment benefits payable by Empire-Reeves under its 1962 Empire-Reeves SUB plan from and after its effective date on February 1, 1963 were financed solely through the delayed obligation. (Stip. X 32.) Thus, in both cases, the intention of the drafters of the 1962 SUB plan that full funding of benefits thereunder would be in the form of delayed obligation within several years after its effective date (see 442 F.2d at 1133) was greatly overestimated, at least as applied to plaintiff. This fact makes doubtful any argument that the creation of the delayed obligation was a device to obtain current tax deductions from an obligation which might never be payable. The delayed obligation was in fact used almost immediately for the payment of unemployment benefits by plaintiff. Inquiry must turn to the length of time of the payment of the delayed obligation to see if the actual payments by plaintiff satisfy Judge Hastie's more severe test that payment should not occur "decades hence." Utilizing the first-in first-out method of accounting expressly authorized by the Tax Court in Lukens, 52 T.C. at 785, and based upon actual cash contributions by Universal-Cyclops into its SUB trust for the purpose of financing unemployment benefits, the delayed obligation accrued under the 1962 Universal-Cyclops SUB plan between July 1, 1962 and December 31, 1970 was completely paid out over the following periods: Year of Final Total Elapsed Year of Accrual Payment Years 1962 (June 30 carry-forward) 1967 5 1962 (July 1 - Dec. 31) 1968 6 1963 1970 7 1964 1970 6 1965 1971 6 1966 N/A N/A 1967 1971 4 1968 1971 3 1969 1971 2 1970 1972 2


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