Rev. Rul. 59-228

The board of directors and the two stockholders of a corporation voted irrevocable pensions for a period of years to two of its officers who owned no stock in the corporation. After paying the pensions for two years, the corporation was dissolved, and the two stockholders assumed the liability of the corporation to pay the pensions. Held, the assumption of such liability by the stockholders, to the extent of the commuted (present) value thereof, operates to reduce the actual amount received by them upon complete liquidation of the corporation and thus reflects a reduction in the amount of gain or an increase in the amount of loss, otherwise determined, to each stockholder in exchange for his stock under the provisions of section 331 and 1001 of the Internal Revenue Code of 1954. Payments subsequently made by the former stockholders do not constitute deductions from their gross income within the meaning of section 161 or section 211 of the Code but merely constitute payments in satisfaction of such obligations. Under the circumstances of this case, the corporation may not deduct the commuted (present) value of the unpaid pensions in its final Federal income tax return under section 162 or section 404 of the Code.