cated to each. (See § 9.23 (m)-27.) | under section 23 (o) only with respect These accounts shall be credited with the amount of the depreciation and depletion deductions computed in accordance with § 9.23 (m)-20 each year, or the amount of the depreciation and depletion shall be credited to depreciation and depletion reserve accounts, to the end that when the sum of the credits for depreciation and depletion equals the cost or other basis of the property, plus subsequent allowable capital additions, no further deduction for depreciation and depletion will be allowed.*†

§ 9.23 (0) -1 Contributions or gifts by individuals. A deduction is allowable | relationship to his business and is made

the

with a reasonable expectation of a finan- | was apportioned to any taxable year becial return ginning after December 31, 1937, shall be commensurate with allowed as a deduction in the years to which amount of the donation may constitute so apportioned to the extent allowable under an allowable deduction as business such section if it had remained in force with respect to such year.

expense.

Sums of money expended for lobbying purposes, the promotion or defeat of legislation, the exploitation of propaganda, including advertising other than trade advertising, and contributions for campaign expenses, are not deductible from gross income.

If the contribution or gift is other than money, the basis for calculation of the amount thereof shall be the fair market value of the property at the time of the contribution or gift.

(3) Exemption of trusts under section 165. The provisions of paragraphs (1) and (2) of this subsection shall be subject to the qualification that the deduction under either paragraph shall be allowable only with respect to a taxable year (whether the year of the transfer or payment or a subsequent year) of the employer ending within or with a taxable year of the trust with respect to which the trust is exempt from tax under section 165.

reasonable pensions to his employees (if the trust is exempt from tax under section 165, relating to trusts created for the exclusive benefit of employees) shall be allowed to deduct from gross income reasonable amounts paid to such trust, in accordance with the pension plan (including any reasonable amendment thereof), as follows:

§ 9.23 (p)-1 Payments to employees' pension trusts. An employer who adopts or has adopted a reasonable pension plan, actuarily sound, and who estabIn connection with claims for deduc-lishes, or has established, and maintains tions under section 23 (o), there shall a pension trust for the payment of be stated in returns of income the name and address of each organization to which a contribution or gift was made and the amount and the approximate date of the actual payment of 'the contribution or gift in each case. Claims for deductions under section 23 (o) must be substantiated, when required by the Commissioner, by a statement from the organization to which the contribution or gift was made showing whether the organization is a domestic organization, the name and address of the contributor or donor, the amount of the contribution or gift and the date of the actual payment thereof, and by such other information as the Commissioner may deem necessary.*†

[SEC. 23. Deductions from gross income.] [In computing net income there shall be allowed as deductions:]

(p) Pension trusts.-(1) General rule.An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trust during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount (1) has not theretofore been allowable as a deduction, and (2) is apportioned in equal parts over a period of ten consecutive years beginning with the year in which the transfer or payment is made.

(a) If the plan contemplates the payment to the trust, in advance of the time when pensions are granted, of amounts to provide for future pension payments, then (1) reasonable amounts paid to the trust during the taxable year representing the pension liability applicable to such year, determined in accordance with the plan, shall be allowed as a deduction for such year as an ordinary and necessary business expense, and in addition (2) one-tenth of a reasonable amount transferred or paid to the trust during the taxable year to cover in whole or in part the pension liability applicable to the years prior to the taxable year, or so transferred or paid to place the trust on a sound financial basis, shall be allowed as a deduction for the taxable year and for each of the 9 succeeding taxable years.

(b) If the plan does not contemplate the payment to the trust, in advance of the time when pensions are granted, of amounts to provide for future pension payments, then (1) reasonable amounts paid to the trust during the taxable year representing the present of 1934, or under section 23 (p) of the Rev- value of the expected future payments enue Act of 1936, which under such section in respect of pensions granted to em

(2) Deductions under prior income tax acts. Any deduction allowable under section 23 (q) of the Revenue Act of 1928 or the Revenue Act of 1932 or the Revenue Act

+For statutory and source citations, see note to § 9.1-1.

Page 1685

ployees retired during the taxable year shall be allowed as a deduction for such year as an ordinary and necessary business expense, and in addition (2) onetenth of a reasonable amount transferred or paid to the trust during the taxable year to cover in whole or in part the present value of the expected future payments in respect of pensions granted to employees retired prior to the taxable year, or so transferred or paid to place the trust on a sound financial basis, shall be allowed as a deduction for the taxable year and for each of the 9 succeeding taxable years.

was allowable as a deduction from gross income for any prior taxable year.

The application of section 23 (p) may be illustrated by the following examples: Example (1). Accruals in advance of pensions granted. In 1939 the M Company adopted a reasonable pension plan and established a pension trust which was exempt from tax under section 165. During the year and upon the basis of an actuarial computation the company paid $8,950,000 to the trust. At the time of the payment and in accordance with the pension plan of the company, years prior to 1939, in respect of emthe pension liability applicable to the ployees then on the retired roll, for pensions to be paid in the future, was $2,000,000; the pension liability applicable to the years prior to 1939, in re

Deductions under section 23 (p) of the Revenue Act of 1938 or under a similar section of a prior Revenue Act and apportioned to any taxable year beginning after December 31, 1937, shall be allowable only with respect to a tax-spect of employees on the active roll, able year (whether the year of the transfer or payment or a subsequent year) of the employer which ends with or within a taxable year of the trust with respect to which the trust is exempt from tax under section 165. As to what constitutes an exempt employees' trust,

see 9.165-1.

for pensions to be paid in the future, was $6,500,000; the payment required to the taxable year 1939 for pensions to cover the pension liability applicable to be paid in the future, was $450,000. The amount paid to retired employees of the M Company by the pension trust as pensions during 1939 was $360,000.

The deduction for 1939 is computed as follows:

(a)

If any portion of the funds of an exempt pension trust reverts to the possession, ownership, or control of the employer by reason of the termination of the trust or otherwise, such amount (except to the extent that it represents a payment to the pension trust made by the employer in accordance with the (b) pension plan and pursuant to the first paragraph of this section, and not theretofore allowed as a deduction to the employer) shall be returned as income by the employer for the taxable year in which it so reverts, unless prior to the close of such year it shall again be placed in trust for the benefit of employees under provisions satisfactory to the Commissioner.

Reasonable payments made by an employer during the taxable year directly to pensioners on account of pensions in respect of which no payment has been made to a pension trust shall be allowed as a deduction from gross income for such year as an ordinary and necessary business expense.

Total deduction_-_-_- 1,300,000 The amount of $360,000 paid to pensioners is not allowable as a deduction for income tax purposes since it was paid by the pension trust and not by the M Company.

Example (2). Accruals on basis of pensions granted. In 1939 the N Company adopted a reasonable pension plan and established a pension trust which was exempt from tax under section 165. In no case will any amount be allowed During the year and upon the basis of as a deduction under section 23 (p) and an actuarial computation the company this section for the taxable year which | paid $2,300,000 to the trust. At the time

of the payment the present value of the expected future payments in respect of pensions granted to employees retired prior to 1939 was $2,000,000; the present value of the expected future payments in respect of pensions granted to employees retired during 1939 was $300,000. The amount paid to retired employees of the N Company by the pension trust as pensions during 1939 was $360,000.

The deduction for 1939 is computed as follows:

(a) Entire amount paid to the pen-
sion trust representing the
present value of the expected
future payments in respect
of pensions granted to em-
ployees retired during 1939-- $300,000
(b) One-tenth of $2,000,000, the
amount transferred to the
pension trust to cover the
present value of the expected
future payments in respect
of pensions granted to em-
ployees retired prior to 1939-

Total deduction__

200,000
500,000

able years beginning after December 31, 1938, it is not entitled to any further deductions under section 23 (p). If it did not make such necessary changes until December 31, 1939, it is not entitled to a deduction of $5,000 for the year 1939 but is entitled to such annual deduction, however, for all subsequent taxable years up to and including the calendar year 1946.*†

§ 9.23 (p)-2 Information to be furnished by employer claiming deductions. If a deduction from gross income is claimed under section 23 (p) in an income return or in a claim for refund on account of payments to an employees' pension trust, the employer shall file with such return or claim for refund a statement describing the pension trust plan, including the basis and method of its operation, together with a copy of the trust indenture, with any amendments thereto, and other documents constituting a part of the plan. If all employees are not included as beneficiaries of the pension trust, a statement showing what classes of employees are excluded, and the general nature of their

If

respective employment and duties, to-
gether with the reason why all em-
ployees are not covered by the pension
trust plan, shall likewise be filed.
such statements have once been filed and
if the return contains a statement when
and where such statements were filed,
they need not again be filed; but, how-
ever, if changes in the pension trust
plan have been made, a statement show-
ing the nature of such changes (to-
gether with copies of any amendments
to the trust indenture and other docu-
ments constituting a part of the plan)
must be filed with the return for the
of deductions under section 23 (p) may
first taxable year for which allowance
be affected by such changes in the pen-
sion trust plan.

Example (3). In 1937 the Y Company adopted a reasonable pension plan and established a pension trust exempt from tax under section 165 of the Revenue Act of 1936 but which would not be exempt from tax for taxable years beginning after December 31, 1938, under section 165 of the Revenue Act of 1938. The Y Company and the trust make their income returns on a calendar year basis. On July 1, 1937, the Y Company pays $50,000 into the trust, for which under section 23 (p) of the Revenue Act of 1936 it is entitled to a deduction of $5,000 for each of the 10 consecutive years beginning with the calendar year 1937. On December 31, 1938, the Y Company makes all necessary changes in the trust so as to satisfy the requirements of section 165 of the Revenue Act of 1938. The Y Company is entitled to an annual deduction of $5,000 for the remaining portion of the 10-year period which began in 1937. If, however, the Y Company does not make the neces- (a) Schedules or work sheets showing sary changes so as to satisfy the re- the derivation of the basic valuation quirements of section 165 of the Rev-factors, or, if such data are not availenue Act of 1938 with respect to tax-able, a statement giving the source of

In addition the following described data and information shall be kept at all times available for inspection by internal revenue officers at the main office or principal place of business of the employer:

the factors from which the actuarial | granted, of amounts to provide for fuvaluations were made.

(b) (1) Schedules showing the computation of the reserve liability for all employees in the active service as determined from the most recent actuarial valuation. For taxable years beginning after December 31, 1937, the most recent actuarial valuation, for the purposes of this section, means such a valuation made not earlier than 5 years prior to the filing of the return.

(2) A similar schedule based on the next preceding valuation if such a valuation has been made.

(c) A schedule showing by ages the individual current liability factors and the application of these factors in determining the liability accrued during the current taxable year.

(d) (1) A schedule showing the computation of the pension liability for all employees retired on pension at the date of the last actuarial valuation.

(2) A schedule showing, by calendar years, the present value of pensions granted from the date of the last actuarial valuation to the end of the taxable year for which the deduction is claimed in an income return or in a claim for refund.

ture pension payments, the data described under paragraphs (b) and (c) above need not be furnished.*†

[SEC. 23. Deductions from gross income.] [In computing net income there shall be allowed as deductions:]

(q) Charitable and other contributions by corporations. In the case of a corporation, contributions or gifts payment of which is use of a domestic corporation, or domestic made within the taxable year to or for the trust, or domestic community chest, fund, or sively for religious, charitable, scientific, litfoundation, organized and operated excluerary, or educational purposes or the prevention of cruelty to children (but in the case of contributions or gifts to a trust, chest, fund, or foundation, only if such contributions or gifts are to be used within the United States exclusively for such purposes), no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; to an amount which does not exceed 5 per centum of the taxpayer's net income as computed without the benefit of this subsection. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner, with the approval of the Secretary.

certain banking corporations, see
(r) For deduction of dividends paid by
section
121.

§ 9.23 (q)-1 Contributions or gifts by (e) A schedule showing the receipts corporations. A corporation may deduct and disbursements of the pension fund from its gross income contributions or during each taxable year carried forward gifts to organizations described in section from the date the pension trust was 23 (q), and to the extent provided by that established. The receipts should in- section, only for the taxable year in which clude the accruals mentioned in para- such contributions or gifts are actually graph (c), interest, and any other mon-paid, regardless of when pledged and reeys credited to the fund. The disburse-gardless of the method of accounting emments should include actual pension pay-ployed by the corporation in keeping its ments made to retired employees and any books and records. As to charitable conother expenditures charged to the pen-tributions by corporations not deductible sion fund. under section 23 (a), see § 9.23 (a)–13. Sums of money expended for lobbying purposes, the promotion or defeat of legislation, the exploitation of propaganda, including advertising other than trade advertising, and contributions for campaign expenses are not deductible from gross income.

If the valuation factors are changed at any time, either because of a change in the pension plan or because of a change in the assumptions upon which the valuation factors are based, the data indicated under paragraphs (b), (c), and (d) above should be available showing the application of both the old and the new valuation factors to the pay roll as of the valuation date coinciding with or next following the date of the change.

The provisions of the first paragraph of § 9.23 (o)-1, relating to (1) the statement in returns of the name and address of each organization to which If the pension plan does not contem- a contribution or gift was made and plate the payment to the trust in ad- the amount and the approximate date vance of the time when pensions are of the actual payment of the contribu