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Section 404 supplanted other code sections with respect to
deductions for contributions to a deferred compensation plan. As
such, we initially address whether the payment of litigation
costs on behalf of the plan was a contribution under section 404.
Pertinent to this inquiry is section 1.404(a)-3(d), Income Tax
Regs., which provides:
Any expenses incurred by the employer in connection
with the plan, such as trustee's and actuary's fees,
which are not provided for by contributions under the
plan are deductible by the employer under section 162
(relating to trade or business expenses), or 212
(relating to expenses for production of income) to the
extent that they are ordinary and necessary.[8]
Neither the statute nor the regulations define the term
"contribution". On brief, respondent proffers the following
definition:
[contribution is] defined as an amount paid by an
employer into a pension trust to provide for the
payment of benefits under the plan and to provide for
ordinary and necessary administrative expenses incurred
by the plan to the extent that those expenses are paid
from the trust fund. If the ordinary and necessary
administrative expenses incurred by the plan are paid
directly by the employer rather than from the trust
fund, these amounts are not considered to be
contributions and, hence are not subject to the limits
of I.R.C. � 404.
We agree with respondent's definition. The purpose of section
1.404(a)-3(d), Income Tax Regs., as we read it, is to clarify
that, if an employer pays ordinary and necessary plan-related
8This regulation was adopted in 1956 after Congress'
overhaul of the Code in 1954 and has remained unchanged since
then. See T.D. 6203, 1956-2 C.B. 218, 219-278.
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