Rev. Rul. 56-530

Advice has been requested whether, in view of the position of the Internal Revenue Service in The Saalfield Publishing Company v. Commissioner , 11 T.C. 756, acquiescence, C.B. 1952-2, 3, those taxpayers, who have been denied (or failed to claim) in the year of payment a deduction for the full amount of premiums paid on employees' annuity contracts under qualified pension or annuity plans, will be allowed a contribution carry-over arising from the contribution or portion thereof denied or unclaimed.

In the Saalfield case, the court held that, under section 23(p)(1)(A)(i) and (ii) of the Internal Revenue Code of 1939, the taxpayer was entitled to deduct in full the amount paid to an employees' pension trust which was actuarially necessary to provide, with respect to all employees under the trust, the remaining unfunded cost of their past and current service credits distributed as a level amount over the remaining future service of each such employee, even though such amount exceeds the deduction allowable under section 23(p)(1)(A)(iii) of the Code. The court in effect stated that there was no basis either in law or the regulations thereunder for the Commissioner's contention that the deduction under clause (ii) of section 23(p)(1)(A) of the Code was limited to that allowed under clause (iii).

The Commissioner's initial position with respect to the Saalfield case was that the decision of the Tax Court of the United States was contrary to the regulations. Nonacquiescence in the decision was announced in 1949, C.B. 1949-1, 6. However, upon further consideration of the issue presented, this position was changed and in I.R.B. 1952-21, 1, dated October 13, 1952, the Commissioner substituted his acquiescence for the original nonacquiescence to the Saalfield decision. See C.B. 1952-2, 3.

Under ordinary circumstances, the Service would now take the position, in view of the acquiescence in the Saalfield case, that all such premiums paid by taxpayers should have been allowed as deductions in full in the year or years paid and that no carry-overs to any later years existed. It is obvious that such a position would react to the detriment of those taxpayers who, in consonance with the original position of the Service, either did not claim or were denied a deduction in the current year of payment for the full amount of such premiums paid since in some cases the statute of limitations would prevent the application of the portion of the premium payment unclaimed or disallowed to the year to which it applies.

Accordingly, under the authority conferred by section 7805(b) of the Internal Revenue Code of 1954, in cases where employers have been denied or failed to claim a deduction for the full amount of premiums paid, in the year of payment, on employees' annuity contracts under qualified pension or annuity plans, acquiescence in the Saalfield case will be applied only to taxable years ending after October 31, 1952, the month in which the acquiescence was announced in the Internal Revenue Bulletin. It is further held that any contribution carry-overs, arising from any contribution or portion of a contribution unclaimed or disallowed as a deduction in such cases, in a taxable year which ended on or prior to October 31, 1952, may be considered as a deductible carry-over for subsequent years until completely absorbed. However, the portion of the carry-over deductible in any taxable year will not be permitted to exceed the difference between the premium paid in such year and the limitation under section 23(p)(1)(A)(iii) of the Code.