Rev. Rul. 59-383

The Internal Revenue Service will not follow the decision of the United States Court of Claims in Russell Manufacturing Company v. United States , 175 Fed.Supp. 159.

The Court of Claims ruled that the taxpayer was entitled to a deduction in the fiscal year 1945 for the amounts of compensation which were actually paid out of irrevocable employee trusts in that year to the employee-beneficiaries, even though under the trust agreements the employees' rights were forfeitable at the time the taxpayer made contributions to the trusts.

The Service takes the position that the court's decision is contrary to the provisions of section 29.23(p.)-11 of Regulations 111, as amended by Treasury Decision 5666, C.B. 1948-2, 34 at 46, wherein it is held that `if an amount is paid during the taxable year but the rights of the employee therein are forfeitable at the time the amount is paid, no deduction is allowable for such amount for any taxable year.'

The court's determination that Regulations 111 do not reflect the provisions of section 23(p)(1)(D) of the Internal Revenue Code of 1939 is contrary to a long standing interpretation of this section by the Service, which is supported by the legislative history of that section.

Accordingly, the disputed regulations will not be changed.

¹ Based on Technical Information Release No. 182, dated October 23, 1959.