46 T.C. 527">*527 Respondent determined a deficiency in petitioners' Federal income tax in the amount of $ 915.74 for the taxable calendar year 1963.

The sole issue presented for decision is whether petitioners are entitled to a deduction in the amount of $ 3,600 for repayment made by petitioner George L. Blanton to his corporate employer of 46 T.C. 527">*528 amounts determined by the Internal Revenue Service to constitute excessive compensation. Petitioners did not contest respondent's disallowance of another deduction in the amount of $ 135 taken in their 1963 Federal income tax return.

FINDINGS OF FACT

Some of the facts are stipulated and as stipulated are so found.

Petitioners George L. Blanton (hereinafter referred to as petitioner) and Fannie Blanton filed their Federal joint income tax return with the district director of internal revenue, Dallas, Tex.

During the calendar years 1959 through 1961, petitioner was a full-time employee (manager), officer (secretary treasurer), and director of Flagg Grain Co., Inc. (hereinafter referred to as the corporation), a Texas corporation.

Stock in the corporation was owned as follows:

1966 U.S. Tax Ct. LEXIS 70">*72 During each of the years 1959 through 1961, petitioner received from the corporation $ 2,400 as compensation for serving as a corporate director.

Petitioner used the total salary, including director's fees, paid to him by the corporation in the years 1959 through 1961 without restrictions or conditions.

During an audit of the corporation's Federal income tax return in 1963, respondent determined that the fees paid to the directors of the corporation were excessive. Only one-half of the fees paid to petitioner in each of the years 1959 through 1961 ($ 1,200 a year, totaling $ 3,600) was allowed by respondent as a deduction to the corporation. The corporation agreed to respondent's adjustment and paid the resulting tax.

Subsequent to the years in which the salaries were received, but not earlier than late 1962, a written contract was executed between the corporation and the officers and directors thereof. This contract provided that in the event the Internal Revenue Service determines that corporate salaries paid to any of the "officer employees" (presumably including directors) are excessive, said officer-employees will repay the excessive portions to the corporation.

During the1966 U.S. Tax Ct. LEXIS 70">*73 year 1963 petitioner repaid the corporation the amount of $ 3,600 which amount was determined by the Internal Revenue 46 T.C. 527">*529 Service in 1963 to constitute excessive compensation received over the years 1959 through 1961.

In their Federal joint income tax return for the calendar year 1963, petitioners claimed a deduction in the amount of $ 3,600 for the repayment of excessive compensation.

In his notice of deficiency, respondent disallowed petitioners' deduction for excessive compensation repaid to the corporation.

OPINION

Petitioner unconditionally received from the corporation director's fees of $ 2,400 in each of the taxable years 1959, 1960, and 1961. During an audit of the corporation in 1963, the Internal Revenue Service determined that one-half of the director's fees paid to the petitioner and the other directors in the years mentioned above were excessive. Subsequent to the years in which the salaries were received by petitioner, but not earlier than late 1962, a contract was executed between the corporation and its directors, including petitioner, which provided for the repayment to the corporation of director's fees to the extent such fees were determined to be excessive1966 U.S. Tax Ct. LEXIS 70">*74 by the Internal Revenue Service. In 1963, pursuant to the above-said contract, petitioner repaid the corporation $ 3,600, representing one-half of the total amount of director's fees which he received in 1959, 1960, and 1961. The sole issue before us is whether petitioners are entitled to a deduction of $ 3,600 in 1963 for the repayment of director's fees.

Firstly, we do not believe that the repayment by petitioner to the corporation of any portion of the fees which he received as a director is deductible under the provisions of section 1341. The relevant portions of that section provide as follows:

(a) General Rule. -- If --

(1) an item was included in gross income for a prior taxable year (or years) because it appeared that the taxpayer had an unrestricted right to such item;

(2) a deduction is allowable for the taxable year because it was established after the close of such prior taxable year (or years) that the taxpayer did not have an unrestricted right to such item or to a portion of such item: and

(3) the amount of such deduction exceeds $ 3,000, * * *