19 T.C. 23">*23 The petition seeks review of deficiencies determined by the Commissioner of Internal Revenue for the calendar year 1944 as follows:

The sole issue now in litigation is whether the Commissioner properly disallowed a deduction in the amount of $ 25,000 claimed by petitioner in its returns as a contribution to an employees' pension trust under section 23 (p) of the Internal Revenue Code. Petitioner now claims a deduction in the amount of $ 23,500.

FINDINGS OF FACT.

A stipulation of facts filed by the parties is hereby adopted and incorporated in these findings by reference.

Petitioner is an Illinois corporation, having its principal place of business at Abingdon, Illinois. It was originally known as Abingdon Sanitary Manufacturing Co., but in 1945 it changed its name to Abingdon Potteries, Inc. It keeps its books1952 U.S. Tax Ct. LEXIS 76">*78 and files its returns on the accrual basis.

19 T.C. 23">*24 Beginning in August 1944, Leonard Fritz, an insurance broker, sought to interest two of petitioner's officers and directors, L. G. Casler and R. E. Bidwell, in an employees' pension plan, which involved participation by an insurance company. Fritz obtained certain preliminary information from these officers, such as data with respect to petitioner's payroll, which he submitted to the New England Mutual Life Insurance Company. The insurance company indicated, in October 1944, that it would accept the underwriting, but it did not bind itself to do so.

The minutes of a meeting of petitioner's board of directors, held on November 24, 1944, disclose that:

Mr. Casler discussed the question of an employees pension trust, and the Board indicated that some good plan should be adopted, and were told that we would investigate several plans and report as soon as possible.

On December 28, 1944, at a meeting of petitioner's board of directors, the following resolution was adopted:

BE IT RESOLVED that the Abingdon Sanitary Manufacturing Company establish a Pension Trust for the benefit of its employees, to be known as "ABINGDON POTTERIES1952 U.S. Tax Ct. LEXIS 76">*79 PENSION TRUST", in substantial compliance with the terms and provisions of the Trust Instrument hereto attached and made a part of this resolution:

and be it further resolved that said company forthwith contribute to and pay into said Trust for the calendar year 1944 the sum of not to exceed $ 25,000.00. And be it further resolved that the President and Secretary of the Corporation be, and they are hereby authorized, empowered and directed to sign and seal said Trust Instrument for and on behalf and in the name of the Corporation and to take any other action for and on behalf of the Corporation which may be necessary or desirable to establish said trust.

Notwithstanding the language in the foregoing resolution there was in fact no trust instrument attached thereto. However, Fritz was present during part of the December 28, 1944, meeting of the board of directors, and he had presented a specimen trust agreement that could be used as a model for drafting a trust agreement for petitioner. Fritz neither had authority to make binding contracts on behalf of the insurance company, nor did he purport to enter into any such contracts. Before the New England Mutual would undertake to 1952 U.S. Tax Ct. LEXIS 76">*80 write policies in connection with a pension trust plan, it was necessary that a satisfactory trust agreement actually be executed and submitted to it for approval.

At the time of the December 28, 1944, meeting, the estimated cost of the premiums for the insurance and annuity policies, based upon the assumption, inter alia, that each eligible employee would elect to participate in the proposed pension plan, was $ 23,586.

On January 25, 1945, at a meeting of the board of directors, Casler and two others were appointed to serve as trustees for the proposed pension trust. No trustees had been appointed until that time.

19 T.C. 23">*25 On January 26, 1945, a trust instrument was executed by petitioner and the trustees who had been appointed the previous day. This trust agreement was patterned after the specimen agreement which had been submitted at the directors' meeting of December 28, 1944, but the actual agreement was at variance with the specimen agreement in a number of minor particulars. Although executed on January 26, 1945, the agreement contained a provision to the effect that "This trust shall be effective as of the 28th day of December, 1944."

The assent of each employee was 1952 U.S. Tax Ct. LEXIS 76">*81 necessary in order to make him a member of the plan. Petitioner notified its employees of its creation of a pension trust by a circular dated and issued on January 30, 1945, and as of that date none of them had yet entered the plan.

After the directors' meeting of December 28, 1944, Fritz was not able to do anything to effectuate the proposed pension plan until the trust agreement was signed and submitted to the insurance company for approval, which would then authorize him to take applications from the employees for the policies. He received such authorization about February 1, 1945, and proceeded promptly to take applications, and to assist in processing them.

On February 7 and 8, 1945, petitioner delivered two checks to the trustees in the aggregate amount of $ 23,500, and on February 8, 1945, the trustees issued their check in the amount of $ 23,500 to the insurance company. That check represented advance payment of premiums for the policies, which were actually issued and delivered at later dates. Protection under each policy, however, ran from the date of the medical examination of the particular employee. Such examinations were given shortly after February 1, 1945.

On February1952 U.S. Tax Ct. LEXIS 76">*82 19, 1945, petitioner and the trustees transmitted to the collector of internal revenue a form, containing information "submitted for approval of contributions made under Abingdon Sanitary Manufacturing Company Pension Trust as allowable exemptions," in accordance with Regulations 19.165 (a)(1)-1(c) and 19.23 (p)(1)-2. By letter dated March 27, 1945, the Deputy Commissioner informed the trustees that the plan met the requirements of section 165 (a) of the Internal Revenue Code, as amended, and that the trust was entitled to exemption under the provisions thereof. The letter did not in any way deal with the question whether payments made in 1945 could be accrued as deductions by petitioner in 1944.

At the close of the taxable year 1944, petitioner had not entered into any contract pertaining to nor had it executed any trust instrument or otherwise established a trust in connection with a pension plan. The resolution of petitioner's board of directors on December 28, 1944, to contribute an amount not to exceed $ 25,000, did not create any obligation on the part of petitioner to make such payment, and 19 T.C. 23">*26 it did not result in an accruable deduction in 1944. The payments aggregating1952 U.S. Tax Ct. LEXIS 76">*83 $ 23,500 on February 7 and 8, 1945, were not accruable as deductions in 1944.

OPINION.

Petitioner seeks a deduction from gross income for 1944 in the amount of $ 23,500 paid by it in February 1945 to a pension trust which it had established for its employees. The deduction is sought under section 23 (p) of the Internal Revenue Code, the applicable provisions of which allow the deduction only "in the taxable year when paid." Except for section 23 (p) (1) (E), which will be discussed presently, these provisions place cash and accrual basis taxpayers on the same footing. Thus, as a general rule, even in the case of an accrual basis taxpayer, the deduction may be taken only in the year of payment, regardless of whether it may have accrued in an earlier year.

Section 23 (p) (1) (E) creates a limited exception from the foregoing requirement. It provides that for the purposes of these provisions, "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 within sixty days after the close of the taxable year of accrual."

Since the payment herein was in fact made in 1945, within1952 U.S. Tax Ct. LEXIS 76">*84 60 days after the close of the year 1944, petitioner contends that it is entitled to the reduction in 1944. The difficulty with petitioner's position is that, in our view, the liability for the payment did not in fact accrue in 1944, and that therefore section 23 (p) (1) (E) has no application. Section 23 (p) (1) (E) deals with payments where there was a proper accrual for the prior year; it allows the deduction to be taken in such prior year, provided that payment is made within 60 days after the close of such year. It in no way undertakes to render an item accruable in the earlier year, which would not otherwise be accruable.

It seems clear to us that the item in question did not accrue in 1944. No pension trust whatever had been created in 1944. True, petitioner's board of directors had resolved on December 28, 1944, to create such a trust, presumably to be patterned after a specimen instrument submitted to it, and had authorized a contribution of not to exceed $ 25,000 to such trust. But that trust was not in fact created until January 26, 1945, and it was only on January 25, 1945, that the trustees who were to serve were named. And there is no evidence that the employees1952 U.S. Tax Ct. LEXIS 76">*85 were notified of the trust prior to January 30, 1945. In these circumstances, it is difficult to see how any liability could accrue against petitioner on December 28, 1944, with respect to the amount involved. All that happened on that day was a unilateral determination by petitioner to create a trust in the future and to make a contribution 19 T.C. 23">*27 to such trust. If, for any reason, petitioner's board of directors should have decided on, say, January 20, 1945, not to go through with the plan, it could doubtless have met and resolved to abandon it, without subjecting petitioner to liability to anyone.

It seems plain to us that the payments in question did not accrue in 1944, and that section 23 (p) (1) (E) is not authority for treating them as though they did accrue in 1944. Section 23 (p) (1) (E) merely allows the deduction to an accrual basis taxpayer in the earlier year, where the payment, otherwise accruable in the earlier year, is in fact made within 60 days after the close of the earlier year. But where, as here, the $ 23,500 item is not properly accruable in 1944 under accepted principles of accrual accounting, nothing in section 23 (p) (1) (E) undertakes to authorize1952 U.S. Tax Ct. LEXIS 76">*86 the deduction in 1944, merely because payment was made within 60 days after the close of 1944.

Petitioner points to 555, Inc., 15 T.C. 671, and Crow-Burlingame Co., 15 T.C. 738, affd. 192 F.2d 574 (C. A. 8), in support of its position. But in those cases, tentative trust agreements had in fact been executed in the earlier year, and it was an indispensable assumption in those cases that the amounts in question had in fact accrued in the earlier year. Here, on the other hand, the amount involved was not properly accruable in 1944, and therefore cannot be deducted in that year. Tavannes Watch Co. v. Commissioner, 176 F.2d 211 (C. A. 2), reversing 10 T.C. 544, also relied upon by petitioner, did not turn upon the issue decided herein. ¹

1952 U.S. Tax Ct. LEXIS 76">*87 Decision will be entered for the respondent.