share does not represent an asset of the decedent's estate unless the committee sees fit, within its discretion, to pay it over to the estate. It is discretionary with the committee as to whether it shall pay the share to the widow and/or to one or more of the children, or expend part or all of it for the "benefit" of one or more of those persons. The beneficiary has no right to designate the party who is to receive payment nor what the "benefit" shall be. Cf. Renton K. Brodie, supra, and Gisholt Machine Co., 4 T. C. 699. Upon the termination of the trust, if a beneficiary be living the committee may, in its discretion, either distribute his share to him or use it, in some way, for his benefit, the committee to be the judge as to what that "benefit" shall be.

The meaning of "benefit" has been broadly constructed. Helvering v. Evans, 126 Fed. (2d) 270; certiorari denied, 317 U. S. 638. Under the present circumstances it could well include uses of the funds which would result in no practical benefit either to the employees or their families or, at most, but a very remote one.

The purpose of petitioner in the creation of the trust and the planned use of the fund, under the direction of the committee, are explained in the testimony of petitioner's president. He states that it was anticipated that petitioner could not retain in its employ its full force after the close of the emergency and the consequent reduction in its volume of manufacture. He testified that petitioner desired to establish a fund from which it could make payments to employees whom it was forced to drop from the rolls in the future and that it was intended that, as to those employees who were not dropped and who survived the 10-year term of the trust, the committee would direct that their remaining shares of the fund be used by the trustee to purchase additional annuities for them under the existing annuity contract. As we have heretofore pointed out, a payment to an employee under these annuities, or the creation of vested interests in such annuities, was conditioned, in each case, upon the employee remaining in the service of petitioner until he or she reached the age of 60 years. Death or separation from the service terminated all rights. As is true of the annuities, the record is silent as to the fair market price to the employees of their interests in this trust. In fact, whether such interests could have been purchased by the employees may be doubted.

We have no doubt that in the creation of this trust, as in the purchase of the annuities, one of the purposes petitioner had in mind was the benefit of its employees. That purpose is admirable. But we think that the benefits to the employees upon the payment to the trust in 1941 were so uncertain, indefinite, and intangible as not to constitute "compensation [paid]" to the employees. Admittedly, petitioner can not recapture this fund, but the practical effect of its

action appears to us to be little more than the creation of a reserve for use in future years in making payments to or for deserving employees or to such among the families of deceased employees as it -may voluntarily decide to benefit.

Petitioner relies heavily upon our decision in Gisholt Machine Co., supra. It is argued that the situation there was identical with that here. We do not agree. There the issue was the deductibility of the payment by an employer to a trust for the employees, as compensation, under section 23 (a) of the code. In that case the production employees of the taxpayer had received a large increase in pay in the taxable year. There had been no corresponding increase in the pay of executives and certain key employees. In these circumstances the taxpayer authorized the distribution of an amount by a committee, which amount we found, as a fact, constituted reasonable compensation for the services actually rendered by these latter employees. It was not revealed whether they reported any of this amount as compensation. Under the plan adopted, a portion of this additional compensation was distributed in cash to the designated employees and the balance was placed in trust for future distribution. There are many differences in the facts there and those here. One very significant difference is that, unlike the situation here, in case of the death of any one of the beneficiaries of the trust before distribution to him of his share of the trust fund, payment would be made of his share to any beneficiary he might designate. See Renton K. Brodie, supra. Thus, it may be said to have been implicitly decided that the employee there received a benefit having a then value equal to its cost to the taxpayer-which value, as stated, we found as a fact constituted reasonable compensation for past services, and so allowed the contested deduction.

Congress has gone far in sections 23 (p) and 165, to indicate its approval of provision by employers for the old age financial security of their employees. Deduction of payments for that purpose is there authorized under certain conditions. Why the disbursements in controversy, even assuming their reasonableness, were not made so as to comply with the law, we do not know. It may be assumed that petitioner preferred to keep the benefits from and control of the transferred funds which this record shows it retained rather than to relinquish them. Likewise we assume that petitioner deliberately chose to determine for itself if, as, and when such disbursements and their amounts should be made in the future rather than to lose those rights and commit itself to the definite program for the future required by section 165. See Regulations 103, arts. 19.23 (p)-1 and 19.165-1. In any event we think that, to be deductible as "compensation [paid]," under the applicable section, the payments must be more than merely

irrevocable by the employer. The employer can not retain the substance and grant only the shadow. The benefit to the employee, when such disbursements are made, must be less illusory and more certainly tangible and definite than those here in dispute. Congress has not said that such disbursements are deductible merely because they are praiseworthy.

In view of our conclusion that the disbursements in dispute did not constitute compensation paid for services rendered, any question of their reasonableness becomes moot.

This brings us to a consideration of petitioner's further contention that the disbursements are deductible as ordinary and necessary business expenses in that they constitute a cost of maintaining an incentive plan or program.

We have already decided that these payments were not "compensation [paid]." Section 23 (a) deals specifically with "compensation [paid]." It describes particularly the payments of compensation for services which are allowable as deductions. Such payments are not allowable unless they fall within those specifications. Under the doctrine of "inclusio unius est exclusio alterius" we think the section denies the deduction of such payments for services, regardless of their designation, since they fall outside the field of allowable compensation deductions. Aside from this conclusion, and in any event, has petitioner established that the questioned disbursements were deductible as ordinary and necessary expenses?

It is argued that the disbursements were ordinary. True, petitioner had bought similar annuities in prior years, but the contribution to the trust in 1941 was the first such payment. To be deductible, however, expenses must be both "ordinary and necessary." And "necessary" means more than commendable on the part of the employer and generally beneficial to him, as these undoubtedly were. Welch v. Helvering, 290 U. S. 111. In both of the taxable years, petitioner had paid cash bonuses in such large amounts as to make employment in its service a thing to be highly valued. None of the questioned disbursements were made because of any legal obligation. They were decided upon and authorized at the conclusion of the year's business when the profits of operation and the effect thereon of income and excess profits taxes were apparent. The amount of the contested deficiencies. is about 75 percent of the payments in controversy. In authorizing these payments, petitioner evidently anticipated their allowance as deductions from its large gross income. It was obvious that these large expenditures, if deductible, could be made without much reduction in the surplus of petitioner. The situation was that, if these earnings were not disbursed through some deductible expenditure, practically the entire amount would have had to be paid as income and excess

profits taxes. But the high rates of these taxes were deliberately fixed by Congress for the purpose of increasing the public revenue to meet rapidly growing Government expenditures for military purposes by taking a great part of such abnormally high profits resulting directly or indirectly from those Government expenditures.

We are convinced that petitioner had built up a loyal and efficient force of employees which was an important factor in the success of its business. Undoubtedly the preservation of that condition would be a benefit to petitioner in the future. Such future benefit would be more direct and tangible than would have been that resulting from the payment of approximately similar amounts to the Government as taxes. But this loyalty and efficiency already existed at the end of 1939. To preserve this 'condition the petitioner, in the taxable years, had paid very large cash bonuses which greatly exceeded those of earlier years. In the face of those facts and the prospective impact of the high tax rates on its current large profits, has petitioner carried its burden of establishing that the large additional disbursements in dispute were made because these expenses were "necessary" to preserve this loyalty and efficiency in its employees? We pass that question because, even if petitioner had established that fact, we think it would still not be entitled to the contested deduction as a necessary business expense.

Petitioner cites many cases in support of its position. They fall into two general classes, neither of which fits the present picture. One class includes those cases where expenditures were found to constitute reasonable compensation paid to the employees for services rendered and allowed as such. In the other class are cases where expenditures were made in furnishing employees facilities for medical or surgical aid, healthful recreation, or religious worship, the furnishing of which was held, under particular circumstances, to have been reasonably necessary to the furtherance of the general interests of the employer. None of these cases seem to us to be controlling or even helpful.

However, we think Welch v. Helvering, supra, directly supports our conclusion. As was pointed out by Mr. Justice Cardozo in that case, the fact that voluntary payments are necessary for the development of petitioner's business in the sense that they are appropriate and helpful does not establish them as necessary within the purview of section 23 (a), supra. Many such expenses are more in the nature of capital expenditures than deductible operating expenses. In that case the taxpayer, carrying on a business as a grain buyer for the Kellogg Co., paid certain of his customers in each of the taxable years a large portion of his gross income from commissions. These customers were former creditors of a company with which the taxpayer had been connected and which had gone through bankruptcy.

The payments of the taxpayer to the creditors were upon debts due them but the collection of which was barred by the discharge in bankruptcy. These payments were made by the taxpayer to these creditors to make possible the establishment of business relations and improve his credit with them and create a good will which would enable him to do business with them, from which he would realize profit. It was held there that, although the disbursements were made for such purpose and had the effect anticipated, they were not necessary business expenses subject to deduction, but more nearly resembled capital outlays to build up a good will among those on whom the success of the business of the taxpayer depended. There, the expenditures were made to create friendly relations and retain customers. Here, the disbursements were made to maintain such relations and secure the continued and uninterrupted service of employees. Petitioner's second alternative argument is that the payments in question do not represent deductions from gross income, allowability of which is to be determined under section 23 of the code, but really constitute an item of cost of goods sold and thus are to be reflected in computing gross income. As such, petitioner argues that respondent is without jurisdiction to eliminate them or redetermine their amount. It is contended that they are of the same character as costs paid by petitioner for raw materials or for base pay of its productive employees under their contracts of employment.

We think that this theory needs little discussion. In its returns for the taxable years petitioner did not so treat these questioned items. They were not included in such costs there, but were deducted from gross income. Its position now is that voluntary bonuses and allowances paid at the end of the year from profits computed upon costs expended or accrued prior to that time constitute a cost of goods sold. We disagree. Petitioner cites no authority and we know of none supporting this position. Cost of goods sold, here means, we think, the amount which the manufacturer pays for raw material and for the labor and expense entering into the conversion and fabrication of that material into the finished product. The items in controversy represent payments voluntarily made and not determined upon until after the payment of all such costs and the manufacture of the goods were completed. These articles were then left in the employer's hands free to sell at a price based upon that cost. The items in dispute were voluntary payments from the profit accruing to petitioner from such sale. This profit petitioner was free to use for any purpose. To hold that such disbursements constitute a cost of goods sold would require the conclusion that the provisions of section 23 (a) regarding the deduction of payments for services rendered has no application to manufacturing corporations. But there is an unbroken line of cases in other courts as well as the Tax Court in 717616-47-5