MEMORANDUM OF OPINION
MANOS, District Judge.
The three plaintiff corporations, M.S.D., Inc., The Signal Devices and Alarm Company, and Morse Signal Devices, Inc., initiated these three actions against the United States of America pursuant to 28 U.S.C. § 1346(a)(1)1 in order to obtain income tax refunds and interest for the taxable year ending March 31, 1970. The amount of federal income tax to which each plaintiff corporation claims entitlement to a refund is:
Plaintiff Amount
M.S.D., Inc. $ 637.00
Morse Signal Devices, Inc. 6,152.00
The Signal Devices and Alarm Company 1,670.00
The three cases were consolidated for trial because they all present a common issue: whether payments made by each pf the plaintiffs to the widow of Morris Wein-stock, a deceased employee who controlled 50% of each corporate plaintiff’s stock at the time of his death, constitutes an ordinary and necessary business expense under 26 U.S.C. § 162(a)2, and is deductible from each corporation’s gross income under 26 U.S.C. § 404(a)(5)3. The Court holds that the funds which each plaintiff paid Morris’ widow were not “necessary” business expenses because none of these payments were intended by any of the corporations to be made in exchange for a business benefit, and therefore none were deductible under Sections 162(a) and 404(a)(5). The Court enters judgment for the defendant in each of these three cases.
[88]*88I.
FACTS
Plaintiff M.S.D., Incorporated is an enterprise organized under the laws of the State of Ohio and engaged in business activities which include the purchase and leasing of protection alarm systems, the ownership and operation of alarm system repair vehicles, and central office equipment. M.S.D.’s principal business location is in Cleveland, Ohio and its business services are performed throughout northeast Ohio. During Morris’ life and presently, the shares of stock of this plaintiff were owned equally by the families of the two founding brothers, Morris and Jack Weinstock. Morris Weinstock was President of M.S.D. from the time of its incorporation until October 18, 1969, the date of his death. Additionally, Morris was a member of the Board of Directors during the same period.4
Plaintiff Morse Signal Devices, Incorporated is an enterprise organized under the laws of the State of Ohio. Its business activities include purchase, sale, installation and service of protective alarm systems. Prior to Morris’ death, 50% of the stock of Morse Signal Devices was owned by Morris’ family and 50% was owned by Jack’s family. Presently Morse Signal Devices stock is equally divided between the families of the two brothers. Morris Weinstock was President and a member of the Board of Directors of Morse Signal Devices from the time of its incorporation until the date he died.5
Plaintiff The Signal Devices and Alarm Company is a corporation organized under [89]*89the laws of Ohio. Its business activities correspond to that of plaintiff Morse Signal Devices, Inc. During Morris Weinstock’s life both he and Jack each owned 50% of the shares of The Signal Devices and Alarm Company, and those shares are presently owned equally between the families of the two brothers. Morris Weinstock was President and a member of the Board of Directors of The Signal Devices and Alarm Company from 1958 until the date of his death in 1969.6
In 1948, Morris and Jack Weinstock purchased an enterprise in Los Angeles, California, now known as Morse Signal Devices of California, which was in the business of installing, servicing and monitoring alarm systems in the greater Los Angeles area. In 1949, Morris and Jack Weinstock decided to move from Cleveland, Ohio to Los Ange-les, California, and in that year Jack Wein-stock and his family moved to the Los An-geles area. Morris Weinstock’s family left Cleveland and took up permanent residence in Los Angeles in 1950. After moving to Los Angeles, Morris and Jack operated Morse of California, and received salaries for their services to that corporation.7
Arthur Orner, Morris Weinstock’s brother-in-law, was employed by all three of the Cleveland corporations for several years before Morris and Jack moved to California. Orner remained in Cleveland, after the Weinstocks moved, and he held the position of general manager in each of the Cleveland corporations. Orner’s job entailed supervising the routine day to day production and service operations of each of the corporations.8
The testimony of Harry Baumgarten, Julius Bovill, and Lessing Gold demonstrates that throughout the 1950s and 1960s Morris Weinstock was an unusually vibrant, talented businessman who set the policies of each of the three plaintiff corporations located in Cleveland. Once every two months Morris visited Cleveland from California, and stayed for 10 to 14 days. During these visits Morris was in close personal contact with Baumgarten, the outside accountant for each of the three Cleveland corporations, and throughout the year Morris conveyed instructions and policy decisions at least once a week via letters, telephone, or dictabelt voice recordings to both Orner and Baumgarten. Baumgarten testified that he discussed the financial status of the three Cleveland corporations only with Morris, and that Morris guided the financial policy for each corporation. A leader in his field, Morris promoted the welfare of the whole security alarm industry by organizing the National Burglar and Fire Alarm Association9, from which he no doubt developed [90]*90many unique business contacts which made him an unusually valuable employee to the three Cleveland corporations that were 50% controlled by his family.
Gold testified thaf in the mid-1960s few security alarm business generated gross sales in excess of $1,000,000, however, during that time frame, the three plaintiff corporations together, under Morris’ stewardship, consistently topped the $1,000,000 sales figure. The testimony of Baumgarten, Bovill, and Gold, based on their respective expertise10, indicates that an executive employee with Morris’ talent could easily expect to receive annual compensation of at least $70,000 per year in the executive employment market. However, during the 1960s Morris received only $20,000 to $30,-000 per year in salary and dividends from the three plaintiff corporations combined, and his corporate compensation did not increase significantly, either to compensate for inflation, or in response to the consistent rise in sales which occurred under his leadership. During the early and mid-1960s Morris was repeatedly advised that his salary was low11, but nevertheless he did not increase it.
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MEMORANDUM OF OPINION
MANOS, District Judge.
The three plaintiff corporations, M.S.D., Inc., The Signal Devices and Alarm Company, and Morse Signal Devices, Inc., initiated these three actions against the United States of America pursuant to 28 U.S.C. § 1346(a)(1)1 in order to obtain income tax refunds and interest for the taxable year ending March 31, 1970. The amount of federal income tax to which each plaintiff corporation claims entitlement to a refund is:
Plaintiff Amount
M.S.D., Inc. $ 637.00
Morse Signal Devices, Inc. 6,152.00
The Signal Devices and Alarm Company 1,670.00
The three cases were consolidated for trial because they all present a common issue: whether payments made by each pf the plaintiffs to the widow of Morris Wein-stock, a deceased employee who controlled 50% of each corporate plaintiff’s stock at the time of his death, constitutes an ordinary and necessary business expense under 26 U.S.C. § 162(a)2, and is deductible from each corporation’s gross income under 26 U.S.C. § 404(a)(5)3. The Court holds that the funds which each plaintiff paid Morris’ widow were not “necessary” business expenses because none of these payments were intended by any of the corporations to be made in exchange for a business benefit, and therefore none were deductible under Sections 162(a) and 404(a)(5). The Court enters judgment for the defendant in each of these three cases.
[88]*88I.
FACTS
Plaintiff M.S.D., Incorporated is an enterprise organized under the laws of the State of Ohio and engaged in business activities which include the purchase and leasing of protection alarm systems, the ownership and operation of alarm system repair vehicles, and central office equipment. M.S.D.’s principal business location is in Cleveland, Ohio and its business services are performed throughout northeast Ohio. During Morris’ life and presently, the shares of stock of this plaintiff were owned equally by the families of the two founding brothers, Morris and Jack Weinstock. Morris Weinstock was President of M.S.D. from the time of its incorporation until October 18, 1969, the date of his death. Additionally, Morris was a member of the Board of Directors during the same period.4
Plaintiff Morse Signal Devices, Incorporated is an enterprise organized under the laws of the State of Ohio. Its business activities include purchase, sale, installation and service of protective alarm systems. Prior to Morris’ death, 50% of the stock of Morse Signal Devices was owned by Morris’ family and 50% was owned by Jack’s family. Presently Morse Signal Devices stock is equally divided between the families of the two brothers. Morris Weinstock was President and a member of the Board of Directors of Morse Signal Devices from the time of its incorporation until the date he died.5
Plaintiff The Signal Devices and Alarm Company is a corporation organized under [89]*89the laws of Ohio. Its business activities correspond to that of plaintiff Morse Signal Devices, Inc. During Morris Weinstock’s life both he and Jack each owned 50% of the shares of The Signal Devices and Alarm Company, and those shares are presently owned equally between the families of the two brothers. Morris Weinstock was President and a member of the Board of Directors of The Signal Devices and Alarm Company from 1958 until the date of his death in 1969.6
In 1948, Morris and Jack Weinstock purchased an enterprise in Los Angeles, California, now known as Morse Signal Devices of California, which was in the business of installing, servicing and monitoring alarm systems in the greater Los Angeles area. In 1949, Morris and Jack Weinstock decided to move from Cleveland, Ohio to Los Ange-les, California, and in that year Jack Wein-stock and his family moved to the Los An-geles area. Morris Weinstock’s family left Cleveland and took up permanent residence in Los Angeles in 1950. After moving to Los Angeles, Morris and Jack operated Morse of California, and received salaries for their services to that corporation.7
Arthur Orner, Morris Weinstock’s brother-in-law, was employed by all three of the Cleveland corporations for several years before Morris and Jack moved to California. Orner remained in Cleveland, after the Weinstocks moved, and he held the position of general manager in each of the Cleveland corporations. Orner’s job entailed supervising the routine day to day production and service operations of each of the corporations.8
The testimony of Harry Baumgarten, Julius Bovill, and Lessing Gold demonstrates that throughout the 1950s and 1960s Morris Weinstock was an unusually vibrant, talented businessman who set the policies of each of the three plaintiff corporations located in Cleveland. Once every two months Morris visited Cleveland from California, and stayed for 10 to 14 days. During these visits Morris was in close personal contact with Baumgarten, the outside accountant for each of the three Cleveland corporations, and throughout the year Morris conveyed instructions and policy decisions at least once a week via letters, telephone, or dictabelt voice recordings to both Orner and Baumgarten. Baumgarten testified that he discussed the financial status of the three Cleveland corporations only with Morris, and that Morris guided the financial policy for each corporation. A leader in his field, Morris promoted the welfare of the whole security alarm industry by organizing the National Burglar and Fire Alarm Association9, from which he no doubt developed [90]*90many unique business contacts which made him an unusually valuable employee to the three Cleveland corporations that were 50% controlled by his family.
Gold testified thaf in the mid-1960s few security alarm business generated gross sales in excess of $1,000,000, however, during that time frame, the three plaintiff corporations together, under Morris’ stewardship, consistently topped the $1,000,000 sales figure. The testimony of Baumgarten, Bovill, and Gold, based on their respective expertise10, indicates that an executive employee with Morris’ talent could easily expect to receive annual compensation of at least $70,000 per year in the executive employment market. However, during the 1960s Morris received only $20,000 to $30,-000 per year in salary and dividends from the three plaintiff corporations combined, and his corporate compensation did not increase significantly, either to compensate for inflation, or in response to the consistent rise in sales which occurred under his leadership. During the early and mid-1960s Morris was repeatedly advised that his salary was low11, but nevertheless he did not increase it. In the middle and late 1960s the three plaintiff corporations, pursuant to Morris’ plans, prepared to issue stock to the public for the first time, and in anticipation of this event, structured their accounting techniques to minimize cash outflows and maximize financial surpluses and internal cash flow.
On March 25, 1965, Morris and Jack Weinstock, as employees, both entered into similar agreements with each of the plaintiff corporations. The agreements provided that upon the death of the employee, the employer-corporation would make monthly payments to his widow equal to l/84th of the aggregate compensation paid the deceased employee during the seven year period immediately preceding his death. Though the widow of the deceased employee was entitled to receive the aforesaid payments for a period of seven years, none of the corporations sustained a duty to make any payments if the widow died before the expiration of the period in which she was to be paid. The agreements recite that the payments were to be made in consideration of (i) the employee’s past and continued services to the plaintiff; and (ii) the employee’s covenant not to compete with the business of the employer for a five year period in the event of termination of his services.12
On the date the three agreements were executed, Morris was 55 years old and Jack was 53 years old.13 Morris Weinstock never intended to leave the employ of the Cleveland corporations. He and his brother Jack had a close personal and working relationship, hence the Court finds that in 1965 there was no threat, or indication of any sort, that Morris considered employment elsewhere.
Morris and Jack Weinstock were the only persons who had agreements with the Cleveland corporations under which payments were to be made to the surviving spouses of corporate employees. Before these agreements were executed in March, 1965, these corporations had no agreements with any of their employees, officers or directors, including Morris and Jack, under which similar widow payments would be made.14
[91]*91On October 18, 1969 Morris Weinstock died and pursuant to the March 25, 1965 agreements the three Cleveland corporations subsequently made the following payments to Morris’ widow, Ann Weinstock, within the fiscal year ending March 31, 1970:
M.S.D. Incorporated $ 2,667.
Signal Devices and Alarm Incorporated 3,200.
Morse Signal Devices and Alarm Incorporated 12,267.
Each of the corporations claimed these payments as deductions on their corporate income tax returns filed for the fiscal year ended March 31, 1970 as “deferred compensation” payments.15 Upon audit and examination of the aforementioned returns, the Internal Revenue Service timely assessed each corporation the following amounts of tax and interest on November 5, 1973:
Corporation Assessed Tax
M.S.D. Incorporated $ 637.
Signal Devices and Alarm Company 1,670.
Morse Signal Devices and Alarm Incorporated 6,152.
The assessed tax was paid, in each case, on November 14, 1973, and on November 29, 1973 each corporation filed a claim for a refund. Subsequently each corporation filed a waiver of notice of claim disallowance, and on May 31, 1974 each filed a complaint seeking a refund for the amount paid.16
II.
THE PLAINTIFFS DID NOT SUSTAIN THEIR BURDEN OF ESTABLISHING, BY A PREPONDERANCE OF THE EVIDENCE, THAT THE PAYMENTS TO MORRIS WEINSTOCK’S WIDOW WERE INTENDED TO OBTAIN A BUSINESS BENEFIT FOR THE PLAINTIFF CORPORATIONS.
The three Cleveland corporate plaintiffs argue that the agreements which they each executed with Morris in 1969 created contractual obligations to pay deferred compensation to Morris or his widow at some future date if certain contingencies occurred.17 Thus the plaintiffs argue that the payments to Morris’ widow pursuant to the March 25, 1965 agreements are deductible under Sections 404(a)(5) and 162(a) because [92]*92the agreement constitutes a deferred compensation plan which satisfies the “ordinary and necessary” business expense deductibility prerequisite embodied in Section 162(a). The corporate plaintiffs contend that the payments mandated under the March 26 agreements were “necessary” in order for the corporations to obtain the business benefit of retaining Morris, an unusually talented executive, without paying him the salary he could obtain in the employment market. The plaintiffs argue that such a benefit was particularly advantageous to them because it boosted corporate surpluses and cash flow at a time when they contemplated a first issuance of stock to the public. The issue of whether a corporate payment to a shareholder-employee’s widow is a “necessary” business expense under Section 162(a) constitutes a question of fact which the Court must determine from the conflicting evidence in the record.18 The Court concludes that the plaintiffs have not established, by a preponderance of the evidence,19 that the intention motivating the creation of the March, 1965 agreements was to benefit the business of the corporate taxpayers.
The agreements under which the plaintiff corporations obligated themselves to make payments to Morris’ widow arose out of negotiations which were not conducted at arms length, because the parties negotiating for the corporations were the same as those who negotiated on behalf of the employees, i. e., Morris and Jack Weinstock.20 When a corporate taxpayer doing business in the form of a closely held family enterprise, seeks a business expense deduction under Sections 162(a) and 404(a)(5) for payments made to the widow of its shareholder-employee the Court must strictly scrutinize the transaction giving rise to the payment in order to insure the reasonableness of the amount, and that the intent motivating the principals of the corporation to make the payment was to commercially benefit the corporation by expending corporate funds in a fashion which is “appropriate and helpful” to the business of the corporation. See, Rubber Associates v. Commissioner of Internal Revenue, 335 F.2d 75, 78-80 (6th Cir., 1964); Welch v. Helvering, 290 U.S. 111, 113, 54 S.Ct. 8, 78 L.Ed. 212 (1933); Friedman v. Delaney, 171 F.2d 269, 271 (1st Cir., 1948), cert. den. 336 U.S. 936, 69 S.Ct. 746, 93 L.Ed. 1095 (1949). Courts apply enhanced judicial scrutiny in such cases because the “family flavor”21 of such transactions offers an opportunity for owner-employees of a closely held corporation to artificially tailor their employment agreements through self-dealing in order to convert a transaction which they intend to be a dividend transaction, for which the corporation is not entitled to an income tax deduction, into a business expense transaction, for which the corporate taxpayer obtains a federal income tax deduction.
[93]*93When the corporate taxpayer in such a case sues for a refund in the district court, the court should, at the close of the corporate plaintiff’s case, examine the agreement between the family shareholder-employee and the corporation which his family controls in order to determine whether the transaction objectively appears, on its face, to be the type of transaction which the parties, had they been unrelated to each other, would have negotiated after arm’s length bargaining. However, this initial inquiry does not conclude the case. In these strict scrutiny eases the Internal Revenue Service always has the opportunity to demonstrate that the true intention of the parties to the agreement was to confer a wholely personal benefit on one of the shareholders regardless of the surface appearance that the agreement is the type of contract that disinterested parties would formulate. Judicial focus on the actual intention motivating a corporate payment to a deceased employee’s widow is emphasized in Fouke Fur Company v. Bookwalter, 261 F.Supp. 367, 371 (E.D.Mo., 1966), in which the court wrote:22
[94]*94“[T]he sole question is whether the payment was a necessary expense under section 162. . . . What does ‘necessary' mean and how does the plaintiff prove that the payment was necessary? Vesuvius Crucible Co. [v. Commissioner of Internal Revenue, 24 T.C.M. 750, 752 (1965), affirmed 356 F.2d 948, 949 (3rd Cir., 1966)] contains helpful language.
‘With a simplicity that is sometimes deceptive the term necessary, has been defined merely as appropriate and helpful, Welch v. Helvering, supra. Beyond this, we have said that while necessary does not mean indispensible, taxpayers seeking the benefit of a deduction under section 162 must show affirmatively not only that there are business ends to be served but also that there is an intention to serve those business ends, by means of the questioned expenditure. This the taxpayer may do by demonstrating clearly that the payment was intended to result in the inurement of a business benefit.’ ” (emphasis in original)
The plaintiff corporations, in their casein-chief, succeeded in establishing that the March 25, 1965 agreements, on their face, appeared to be the type of deferred compensation agreements which the parties might have formed had they negotiated at arm’s length. The agreements appeared to furnish Morris with retirement security for his wife and at the same time enable the three corporate plaintiffs to retain a valuable employee at a low salary thus boosting their collective cash flow and rendering them more attractive to outside investors should the plans for a public issuance of stock materialize. Thus the plaintiffs succeeded in having overruled the Internal Revenue Service’s motion to dismiss at the conclusion of their case-in-chief. However, having such a motion overruled differs materially from ultimately persuading the Court by a preponderance of the evidence23 that the actual intent motivating the creation of the March 25, 1965 agreements was to obtain a business benefit for the closely held family corporations.
In presenting its case the Internal Revenue Service called Jack Weinstock, a principal of the three corporations as upon cross-examination. He testified that he and Morris were the individuals who negotiated the three agreements on behalf of themselves and each corporation, and that the two brothers reached an accord in what “seemed like” one afternoon. The deferred salary idea was first expressed by Morris who according to Jack’s testimony in court, raised the issue in part because he was concerned about financial protection for his wife should he predecease her. When expressly asked in court whether the reason for the deferred payment contracts was protection of the controlling brothers respective families Jack answered “no.” However, at his deposition Jack was asked:
“Q. So with regard to that agreement that was entered into both between yourself and the corporations and your brother Morris and the corporation, would you say that the reason for the creation of the contract with the corporations was to provide some protection for your families, specifically your wives?
“A. That was definitely it, yes.”24 Jack also gave this testimony at his deposition:
“Q. So would you say that both you and your brother, in entering into this kind of agreement, were interested in creating some kind of a family plan for economic security or—
“A. Yes.”25
Similarly, when Jack was asked in court whether there was no need in 1965 for either brother to offer special concessions to the other in order to keep the other in the business, Jack replied that he did not know [95]*95if such a need existed at that time. However, during his deposition Jack was asked the following question and gave the following answer:
“Q. I think you have testified that in 1965 there was no dispute which would lay the ground work for either one of you leaving the business?
“A. No none whatsoever.
“Q. So there really was no need in ’65 for either one of you to try and contract with the corporation to keep the other one in the business or keep him interested in the business, was there?
“A. No.”26
At trial Jack testified that in operating the three Cleveland corporations, the two owners did not cause those entities to pay them what each brother needed. However, in his deposition Jack was asked the following questions and gave the following answers:
“Q. Now, who was it in the corporations, and I am referring to the Cleveland corporations, that actually set the amount of salary that you and your brother would receive on a yearly basis?
“A. We did.
“Q. Did you have any formula as to how to do it or—
“A. Not really, just what we needed, I imagine.”27
The Court finds that under the strict scrutiny test mandated by the “family flavor” of the transactions under examination in this case, the plaintiff corporations can prove their case by a preponderance of the evidence only if Jack Weinstock credibly testified in court to facts which support the plaintiffs’ theory of the intention motivating the creation of those contracts. Jack’s testimony did not credibly support the theory suggested by the evidence contained in the plaintiffs’ case-in-chief, because he was repeatedly and seriously impeached by material differences, between his sworn testimony in court and his sworn testimony28 at the earlier deposition. The Court concludes that the plaintiffs failed to sustain their burden of proving, by a preponderance of the evidence,29 that the intention of those who formed the contracts was to boost the surpluses and cash flow of each corporate taxpayer, and therefore they likewise failed to establish that the agreements were intended to confer a business benefit on those corporations as required by Section 162. Thus the Court concludes, based on the inconsistencies in Jack Wein-stock’s testimony, the intention motivating the corporations to enter the agreements to pay Morris’ widow was to insure her financial security, and no concern was given to conferring a business benefit for the corporations. The Court finds for the defendant in all three cases and orders that judgment in each case be issued accordingly.
This opinion is adopted as findings of fact and conclusions of law as required by Fed. R.Civ.P. 52(a).
IT IS SO ORDERED.