                          T.C. Memo. 1997-556



                        UNITED STATES TAX COURT



     A.C. GREEN ELECTRICAL CONTRACTORS, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8794-95.                  Filed December 22, 1997.



     Bruce H. Guttman, for petitioner.

     Peter J. Gavagan, for respondent.



                          MEMORANDUM OPINION


     SWIFT, Judge:   Respondent determined deficiencies in and

additions to petitioner's Federal income and excise taxes for

petitioner’s taxable years ending September 30, 1987, 1988, 1989,

and 1990, as follows:
                                - 2 -


Taxable Year   Income Tax       Excise Tax           Additions to Tax
   Ending      Deficiency       Deficiency        Sec. 6651 Sec. 6659A

  9/30/87      $61,816             --                --      $18,555
  9/30/88       55,075          $22,679           $ 5,670     16,523
  9/30/89       52,970           45,359            11,340     15,891
  9/30/90         --             45,359            11,340       --


     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

     After settlement of some issues, the issue for decision is

whether petitioner's contributions to its employee benefit plans

exceeded the actuarial costs of funding retirement benefits

provided under the plans.


Background

     This case was submitted fully stipulated by the parties

pursuant to Rule 122.    When the petition was filed, petitioner's

principal place of business was located in New York, New York.

     During the years in issue, Chaim Rozenblatt and Adam

Jakubowicz each owned 50 percent of the stock of petitioner.

     On July 1, 1987, petitioner adopted two defined benefit

pension plans (the plans) -- one for the benefit of Rozenblatt

and one for the benefit of Jakubowicz.       The plans were drafted by

Morris J. Silberstein, an actuary with Pensions & Forecasting Co.

The plans were effective retroactively as of October 1, 1986.
                                 - 3 -


     For the years in issue, the plans constituted qualified

pension plans under section 401, and Rozenblatt and Jakubowicz

were the only participants in their respective plans.

     Under section 3.02 of each plan, if Rozenblatt and

Jakubowicz are not married at the time of retirement, each will

receive what is referred to as a normal retirement benefit in the

form of a single life annuity that will provide monthly payments

commencing after retirement and continuing for each participant's

life.   Section 3.02 of each plan provides as follows:


     [Rozenblatt’s or Jakubowicz’s] Normal Retirement
     Pension computed under Section 3.01 shall be paid * * *
     in the form of a monthly annuity for his lifetime,
     commencing on the first day of the month following the
     date on which * * * [he] attains his Normal Retirement
     Date. Such normal form of payment shall be subject to
     any election made by such Participant under Article IV
     and V of this Agreement.


     Under section 4.01 of each plan, however, if Rozenblatt and

Jakubowicz are married at retirement, each will receive monthly

annuity payments in the form of a qualified joint and survivor

annuity (QJSA).   Under a QJSA, periodic annuity payments are made

over the joint lives of the participant and his spouse.   The

participant receives annuity payments for his life, and if the

spouse survives the participant, the surviving spouse receives

annuity payments for her life.    Also under section 4.01 of each

plan, Rozenblatt or Jakubowicz could elect in writing not to

receive the QJSA and instead to receive simply a single life
                                - 4 -


annuity for his life.    Under this election, the surviving spouse

would receive nothing.

     Section 4.01 of each plan provides as follows:


          Notwithstanding the provisions of Article III, the
     benefits of * * * [Rozenblatt or Jakubowicz] having a
     spouse living on the date on which his benefits would
     commence because of his retirement on his Normal or
     Deferred Retirement Date or earlier commencement of
     benefits shall be paid in the form of a * * * [QJSA]
     unless, within 90 days prior to such date (or within
     such longer or shorter period as may be deemed
     reasonable by the Secretary of the Treasury), he elects
     in writing not to take such annuity. * * *


     Under section 1.25 of each plan, the QJSA provided under

each plan is defined as a joint and 100-percent survivor annuity

(i.e., each surviving spouse is to receive as a survivor annuity

the same annuity payment that her husband is to receive during

his life).   Under section 1.25 of each plan, the QJSA is defined

further as a joint and 100-percent survivor annuity that is

equivalent in value to a participant's retirement pension.

Section 1.25 of each plan provides as follows:


     [QJSA] means an annuity for the life of * * *
     [Rozenblatt or Jakubowicz] with a survivor annuity for
     the life of the spouse * * * which is the actuarial
     equivalent of his Retirement Pension. The Survivor
     Annuity shall be the same amount the annuitant was
     receiving.


Under the plans, "actuarial equivalent" means equal in present

value.
                              - 5 -


     "Retirement Pension" is defined in the plans as "the monthly

payment to which * * * [Rozenblatt or Jakubowicz] shall become

entitled pursuant to the terms * * * [of the plans]".

     Under the plans, the trustee, the administrator, and the

actuary were not expressly given discretionary authority to

interpret plan provisions, and funding decisions of the trustee,

the administrator, and the actuary were not to be regarded as

final and unreviewable.

     During the years in issue, Rozenblatt and Jakubowicz each

were married.

     For each of the years in issue, Silberstein, the actuary who

drafted the plans, made actuarial valuations and made funding

decisions with regard to the plans.   In calculating petitioner's

yearly contributions to the plans, Silberstein concluded that

Rozenblatt and Jakubowicz each were entitled to receive a benefit

in the form of a subsidized joint and 100-percent survivor

annuity (i.e., a joint and 100-percent survivor annuity under

which Rozenblatt and Jakubowicz each would receive the full

present value of a single life annuity during their lives).

     The present value of a subsidized joint and 100-percent

survivor annuity generally exceeds the present value of a single

life annuity for the life of each participant because each

participant receives the full present value of a single life

annuity during the participant's life and also each surviving
                              - 6 -


spouse receives additional annuity payments after the

participant's death.

     On the basis, in part, of Silberstein’s treatment of the

plans as establishing subsidized joint and 100-percent survivor

annuities for Rozenblatt and Jakubowicz and their spouses,

petitioner made contributions to the plans in the total amounts

of $227,646, $226,794, and $226,794, respectively, for each of

the years 1987, 1988, and 1989.

     On its Federal income tax returns for years ending

September 30, 1987, 1988, and 1989, petitioner claimed deductions

under section 404 for the above total respective contributions to

the plans in each year.

     For the year ending September 30, 1990, petitioner did not

make any deductible contributions to the plans, and no deduction

with regard thereto was claimed on petitioner's 1990 Federal

income tax return.

     On audit of petitioner for 1987, 1988, and 1989, respondent

treated Rozenblatt and Jakubowicz as receiving under the plans

only a reduced joint and 100-percent survivor annuity.    The

present value of a reduced joint and 100-percent survivor annuity

equals the present value of a single life annuity for the life of

the participant (i.e., the value of a single life annuity for the

life of the participant is spread over the actuarial life

expectancies of the participant and the spouse).
                               - 7 -


     On the basis of respondent's determination that Rozenblatt

and Jakubowicz were entitled to receive only reduced joint and

100-percent survivor annuities and after several other

adjustments not relevant herein, respondent disallowed as excess

contributions for 1987, 1988, and 1989, respectively, $177,505,

$177,760, and $175,454 of the total claimed deductions relating

to the plans.

     Also, for 1988, 1989, and 1990, respondent determined that

petitioner was liable for excise taxes under section 4972 with

regard to the portion of petitioner’s contributions to the plans

that, in respondent's view, constituted excess contributions.


Discussion

     Generally, employers may deduct contributions to qualified

pension plans that fund retirement benefits for plan

participants.   Sec. 404(a)(1)(A).   Such contributions, however,

for Federal income tax purposes, are deductible by employers only

to the extent contributions to the plans do not exceed the

actuarially projected costs of funding benefits provided under

the plans.   Sec. 1.404(a)-3(b), Income Tax Regs.   Section

1.404(a)-3(b), Income Tax Regs., provides:   "In no event shall

costs for the purpose of section 404(a)(1) exceed costs based on

assumptions and methods which are reasonable in view of the

provisions and coverage of the plan".
                               - 8 -


     Courts have interpreted the language of employee benefit

plans using principles of contract and trust law.   See Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110-115 (1989); Chiles

v. Ceridian Corp., 95 F.3d 1505, 1511 (10th Cir. 1996); Haley v.

Paul Revere Life Ins. Co., 77 F.3d 84, 88-89 (4th Cir. 1996);

Kemmerer v. ICI Americas, Inc., 70 F.3d 281, 288 (3d Cir. 1995);

Sayers v. Rochester Tel. Corp., 7 F.3d 1091, 1094-1095 (2d Cir.

1993); Pizzuti v. Polaroid Corp., 985 F.2d 13, 14 (1st Cir.

1993).

     Language used in employee benefit plans is generally

interpreted according to its common and ordinary meaning, and an

effort is made to give meaning to all language of the plans.

Chiles v. Ceridian Corp., supra; Sayers v. Rochester Tel. Corp.,

supra at 1094-1095.

     Where employee benefit plans do not specifically provide

trustees or plan administrators with discretionary power to

interpret plan provisions and where the plans do not provide that

trustees' and administrators' decisions should be given

deference, interpretations given to the language of plans by

trustees or administrators are not entitled to any particular

deference.   Firestone Tire & Rubber Co. v. Bruch, supra at 111-

112; Masella v. Blue Cross & Blue Shield of Conn., Inc., 936 F.2d

98, 103 (2d Cir. 1991).
                               - 9 -


     Taxpayers bear the burden of proof with regard to claimed

deductions.   Rule 142(a); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).

     Petitioner argues that under the plans involved herein the

married participants (namely Rozenblatt and Jakubowicz) are

entitled to receive QJSA's in the form of subsidized joint and

100-percent survivor annuities.    Petitioner argues that the

trustee was given discretionary power to interpret the plans and

that the Court should defer to the trustee's interpretation of

the plans.

     Respondent argues that under the plans, Rozenblatt and

Jakubowicz are entitled to receive QJSA's in the form of only

reduced joint and 100-percent survivor annuities and that

contributions to the plans in excess of what was required to fund

such reduced joint and 100-percent survivor annuities are not

deductible.   Respondent emphasizes that the actuary did not have

discretionary power under the plans to interpret plan language,

and respondent contends that the actuary's funding decisions

should be given little or no deference.

     We generally agree with respondent's interpretation of the

language of the plans.

     Under the plans, the trustee, the administrator, and the

plan actuary were not given deference in interpreting the plans

and in making funding decisions.    Accordingly, we are not
                               - 10 -


required herein to give petitioner's interpretation of the plans

any particular deference.    Firestone Tire & Rubber Co. v. Bruch,

supra at 110-115.

     The term "QJSA" is defined only in section 1.25 of each

plan.   Section 1.25 of each plan defines QJSA as a joint and 100-

percent survivor annuity, "which is the actuarial equivalent of *

* * [the participant's] Retirement Pension."   As indicated,

"actuarial equivalent" means equal in present value.   The phrase

"which is the actuarial equivalent of * * * [the participant's]

Retirement Pension" implies an equivalence in value of two

different retirement benefits--namely, each participant's normal

retirement pension and the joint and 100-percent survivor

annuity.   Each plan describes a participant's normal retirement

pension in terms of a single life annuity.   When read in the

context of the entirety of the plans, section 1.25 quantifies the

joint and 100-percent survivor annuity as the actuarial

equivalent of a single life annuity for the life of each

participant, or the normal retirement benefit provided under

section 3.02 of each plan.   Accordingly, we conclude that under

section 1.25 of each plan, Rozenblatt and Jakubowicz each receive

a joint and 100-percent survivor annuity that has the same

present value as a single life annuity for the life of each

married participant (i.e., a reduced joint and 100-percent

survivor annuity).
                              - 11 -


     We note that with regard to qualified plans, a QJSA is

generally defined in the Code and regulations in terms of a

reduced joint and survivor annuity.    See sec. 417(b); sec.

1.401(a)-11(b)(2), Income Tax Regs.

     Petitioner has not identified any plan language which

logically establishes a subsidized joint and 100-percent survivor

annuity as a form of benefit for Rozenblatt and Jakubowicz.

     For the above reasons, we agree with respondent's

interpretation of the language of the plans, and we conclude that

under the plans, Rozenblatt and Jakubowicz receive retirement

benefits in the form of joint and 100-percent survivor annuities

that have the same present value as single life annuities for the

life of each participant or reduced joint and 100-percent

survivor annuities.   Accordingly, the portion of petitioner's

contributions to the plans that exceed the costs of funding

retirement benefits for Rozenblatt and Jakubowicz in the form of

reduced joint and 100-percent survivor annuities was properly

disallowed by respondent.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.
