Rev. Rul. 57-419

Advice has been requested concerning the allowability of deductions for contributions to an employees' trust made, by an employer on the accrual basis, pursuant to a plan, all the requisites for a valid existing trust under local law having been met on or before the last day of the year of accrual except the furnishing of the trust corpus, where such corpus is supplied within the time prescribed for filing the return (including extensions thereof) as provided by section 404(a)(6) of the Internal Revenue Code of 1954.

Contributions to an employees' trust, to constitute allowable deductions, must be made pursuant to a plan in effect and to a valid existing trust which is recognized under local law. In P. S. No. 55, ¹ dated January 9, 1946, and Mimeograph 5985, C. B. 1946-1, 72, it is held that, while subparagraph (E) of section 23(p)(1) of the 1939 Code (corresponding to section 404(a)(6) of the 1954 Code) provides that a taxpayer on the accrual basis shall be deemed to have made a payment, for the purposes of subparagraphs, (A), (B), and (C) of such section, on the last day of the year of accrual, if the payment is on account of such taxable year and is made within 60 days after the close of the taxable year of accrual, such subparagraph (E) does not, however, create a trust or relate a trust back to a period when in fact it had no existence.

Reconsideration has been given to the issue involved in P. S. No. 55 and Mimeograph 5985, supra, which is whether the existence of a trust, forming part of an accrual basis employer's employees' plan described in section 401(a) as being exempt under section 501(a) of the 1954 Code, which was complete in all respects, except that it had no corpus, on the last day of the taxable year, may be related back to that day by the contribution of a corpus within the 60-day period specified in section 23(p)(1)(E) of the 1939 Code or the time prescribed for filing the return (including extensions thereof) specified in section 404(a)(6) of the 1954 Code, whichever is applicable.

Section 404(a)(6) of the 1954 Code provides as follows:

For purposes of paragraphs (1), (2), and (3), a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

Section 23(p)(1)(E) of the 1939 Code provides as follows:

For the purposes of subparagraphs (A), (B), and (C), a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if the payment is made on account of such taxable year and is made within sixty days after the close of the taxable year of accrual.

In view of the express provisions of the above-quoted provisions of the 1939 and 1954 Codes that a taxpayer on the accrual basis shall be deemed to have made a payment on the last day of the year of accrual if payment is made within the respective periods specified in such provisions of the Codes, it is now concluded that, where the trust corpus is lacking at the close of the taxable year by reason of the employer-taxpayer's failure to make the initial contribution, such corpus is furnished and the trust must be deemed to have been in existence as of that year, if the contribution is made in compliance with section 404(a)(6) of the 1954 Code or section 23(p)(1)(E) of the 1939 Code, whichever is applicable to the particular year involved, Dejay Stores, Inc., et al. v. Ryan, 229 Fed. (2d) 867 and Tallman Tool & Machine Corporation v. Commissioner, 27 T. C. 372, acquiescence page 7, this Bulletin.

Therefore, where a trust, forming part of an accrual basis employer's qualified employees' pension, profit-sharing, or stock bonus plan, which was complete in all respects under local law, except that it had no corpus on the last day of the taxable year, the trust will be deemed to have been in existence and in effect on the last day of the taxable year for the purposes of section 404(a) of the 1954 Code and section 23(p)(1) of the 1939 Code if the employer shall have paid into the trust the required corpus within the periods specified by section 404(a)(6) of the 1954 Code or section 23(p)(1)(E) of the 1939 Code.

Accordingly, P. S. No. 55, dated January 9, 1946, is hereby revoked and Mimeograph 5985, supra, is hereby modified to the extent that it does not deem a trust to be in existence at the close of the taxable year when payment of the trust corpus is not made until after the close of the taxable year but within the 60 day period allowed by section 23(p)(1)(E) of the 1939 Code.

¹ Not published in the Bulletin.