Bernard McMenamy Contractor, Inc. v. Commissioner of Internal Revenue

Eighth Circuit

Bernard McMenamy Contractor, Inc. v. Commissioner of Internal Revenue

442 F.2d 359, 27 A.F.T.R.2d (RIA) 1307, 1971 U.S. App. LEXIS 10336

CourtCourt of Appeals for the Eighth Circuit

DecidedMay 7, 1971

Docket20625

StatusPublished

Cited by33 cases

This text of 442 F.2d 359 (Bernard McMenamy Contractor, Inc. v. Commissioner of Internal Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Bernard McMenamy Contractor, Inc. v. Commissioner of Internal Revenue, 442 F.2d 359, 27 A.F.T.R.2d (RIA) 1307, 1971 U.S. App. LEXIS 10336 (8th Cir. 1971).

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Opinion

ALDRICH, Circuit Judge.

Taxpayer corporation, contrary, perhaps, to usual practice, requested a qualification ruling on its profit-sharing plan only after it had put it into effect. By the time the ruling came down, unfavorably, several tax years had passed. The Commissioner asserted an income tax deficiency on the ground that the contributions made to the plan were not deductible under the Internal Revenue Code of 1954, 26 U.S.C. § 401, upon which taxpayer had relied. The Tax Court affirmed, by a divided court, 54 T.C. 1057 (1970), and taxpayer appeals. 1

The difficulty with taxpayer’s plan is that the formula, by taking into account the number of years of past service, resulted in overweighing “the contributions or benefits provided [for] * * * employees who are officers, [or] shareholders * * * ” as against other employees beyond the extent of their difference in pay, as expressly forbidden by the statute. 26 U.S.C. § 401(a) (4). Taxpayer asserts that it is not only natural, but fair, to afford larger benefits to those longer in service, and that when a plan is initiated and in effect being funded, and the senior employees may be nearer retirement, it is fair to make larger contributions on their account. This may or may not be true, having in mind that during the pre-plan years these employees received what, presumably, would have been paid into the plan on their behalf had it been in effect, and are now receiving it a second time. But if it be fair, it is nonetheless irrelevant. The question is the extent to which Congress was willing to afford a present income tax deduction to the employer. Even if it is reasonable to weigh a plan in terms of past service, it is nevertheless not improper for Congress to exclude any plan which discrim-mates economically in favor of a special class. Cf. Commissioner of Internal Revenue v. Pepsi-Cola Niagara Bottling Corp., 2 Cir., 1968, 399 F.2d 390. The fact that a taxpayer may advance a good reason for its plan is not the point. Deductions are a matter of grace, and short of total arbitrariness it is for Congress to weigh the reasons.

Almost this precise case was recently decided in favor of the government. Auner v. United States, 7 Cir., 1971, 440 F.2d 516. We concur.

Affirmed.

1

. A companion case, No. 20,626, involving the Trustee under the Plan, raises no separate question.

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ALDRICH, Circuit Judge.

Taxpayer corporation, contrary, perhaps, to usual practice, requested a qualification ruling on its profit-sharing plan only after it had put it into effect. By the time the ruling came down, unfavorably, several tax years had passed. The Commissioner asserted an income tax deficiency on the ground that the contributions made to the plan were not deductible under the Internal Revenue Code of 1954, 26 U.S.C. § 401, upon which taxpayer had relied. The Tax Court affirmed, by a divided court, 54 T.C. 1057 (1970), and taxpayer appeals. 1

The difficulty with taxpayer’s plan is that the formula, by taking into account the number of years of past service, resulted in overweighing “the contributions or benefits provided [for] * * * employees who are officers, [or] shareholders * * * ” as against other employees beyond the extent of their difference in pay, as expressly forbidden by the statute. 26 U.S.C. § 401(a) (4). Taxpayer asserts that it is not only natural, but fair, to afford larger benefits to those longer in service, and that when a plan is initiated and in effect being funded, and the senior employees may be nearer retirement, it is fair to make larger contributions on their account. This may or may not be true, having in mind that during the pre-plan years these employees received what, presumably, would have been paid into the plan on their behalf had it been in effect, and are now receiving it a second time. But if it be fair, it is nonetheless irrelevant. The question is the extent to which Congress was willing to afford a present income tax deduction to the employer. Even if it is reasonable to weigh a plan in terms of past service, it is nevertheless not improper for Congress to exclude any plan which discrim-mates economically in favor of a special class. Cf. Commissioner of Internal Revenue v. Pepsi-Cola Niagara Bottling Corp., 2 Cir., 1968, 399 F.2d 390. The fact that a taxpayer may advance a good reason for its plan is not the point. Deductions are a matter of grace, and short of total arbitrariness it is for Congress to weigh the reasons.

Almost this precise case was recently decided in favor of the government. Auner v. United States, 7 Cir., 1971, 440 F.2d 516. We concur.

Affirmed.

1

. A companion case, No. 20,626, involving the Trustee under the Plan, raises no separate question.

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442 F.2d 359, 27 A.F.T.R.2d (RIA) 1307, 1971 U.S. App. LEXIS 10336, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bernard-mcmenamy-contractor-inc-v-commissioner-of-internal-revenue-ca8-1971.

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