                      T.C. Memo. 1998-64



                  UNITED STATES TAX COURT



        REED SMITH SHAW & MCCLAY, WILLIAM J. SMITH,
             TAX MATTERS PARTNER, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14392-93.      Filed February 17, 1998.



     William Joseph Smith, pro se.

     Michael A. Yost, Jr., for respondent.



          MEMORANDUM FINDINGS OF FACT AND OPINION

     WHALEN, Judge:   This is an action brought by the tax

matters partner of the above-captioned partnership for

readjustment of partnership items.   It involves a notice

of final partnership administrative adjustment (notice of

FPAA) in which respondent disallowed a deduction of $16,500
                             - 2 -

that was claimed on the partnership's 1986 return.    The

amount of the deduction is the value of certain stock that

the partnership allegedly contributed to a defined benefit

plan for the benefit of one of its partners.    The sole

issue for decision is whether the partnership is deemed to

have "paid" the alleged contribution of stock to the

defined benefit plan on the last day of 1986, as provided

by section 404(a)(6), with the result that it is entitled

to deduct the value of the stock on its 1986 return under

section 404(a)(1).   Unless stated otherwise, all section

references are to the Internal Revenue Code as in effect

during the year in issue.


                      FINDINGS OF FACT

     Some of the facts have been stipulated by the parties

and are so found.    The stipulation of facts and attached

exhibits are incorporated herein by this reference.    At the

time the instant petition was filed, the principal place of

business of the partnership, Reed Smith Shaw & McClay, was

located in Pittsburgh, Pennsylvania, and the tax matters

partner worked and resided there.    The partnership reported

income and expenses on a calendar year basis and used the

cash receipts and disbursements method of accounting.
                            - 3 -

Defined Benefit Pension Plan

     On November 15, 1984, the partnership established

a defined benefit pension plan for one of its partners,

Mr. Arland T. Stein, who was the sole participant of the

plan.   The plan was designated the RSSM/ATS Defined

Benefit Pension Plan #XX-XXXXXXX/125 (the plan).    It became

effective on January 1, 1984, and was amended on January 1,

1985.   The plan and the trust that formed a part thereof,

as described below, constituted a qualified pension plan

within the meaning of section 401(a), and the trust was

tax-exempt under section 501(a).

     The general administration of the plan and the

responsibility for carrying out its provisions were placed

in the hands of a "committee".    The plan document provides

that the committee is to be appointed by the partnership

and "shall consist of, or include, the individual named

on the cover page of the Plan"; viz, Mr. Stein, the sole

participant.   There is no evidence that the partnership

appointed any other person to be a member of the committee.

     The plan document designates the committee as the

"plan administrator" within the meaning of section 3(16)(A)

of the Employee Retirement Income Security Act of 1974,

Pub. L. 93-406, 88 Stat. 835.    Accordingly, the committee
                            - 4 -

was responsible for the day-to-day administration of the

plan, such as engaging an actuary to specify the amount

of contributions required to satisfy the minimum funding

standard of section 412 and the maximum contributions

deductible under section 404(a).    The committee was also

authorized to appoint one or more investment managers and

was responsible for the determination of benefits due

under the plan.   The plan document provides that its terms

should be construed in accordance with the laws of the

Commonwealth of Pennsylvania.   Article VI of the plan

document gives Mr. Stein's wife, Mrs. Helen M. Stein, the

right to receive Mr. Stein's benefits in the event of his

death.

     Article VIII, section 8.2 of the plan document sets

forth a disclaimer of the partnership's liability to make

contributions to the plan which states as follows:


     Although it is the intention of the Firm [i.e.,
     the partnership] that the Plan shall be continued
     and that contributions hereunder shall be made as
     provided in Section 8.1 above, the Plan is
     entirely voluntary on the part of the Firm and
     its continuance and the payment of contributions
     hereunder are not assumed as contractual
     obligations of the Firm, and the Plan shall have
     no cause of action against the Firm. The Firm
     does not guarantee or promise to pay or cause to
     be paid any of the benefits provided by the Plan.
     * * * The Firm specifically reserves the right,
     in its sole and absolute discretion, to modify,
                           - 5 -

     suspend, in whole or in part, at any time, or
     from time to time, and for any period or periods
     of time, or to discontinue, at any time, the
     contributions described in Section 8.1 hereof,
     provided such act is not in derogation of any law
     or laws which at such time are applicable to
     legal and enforceable rights of this Plan. The
     fact that the Firm becomes subject to any tax or
     penalty by having failed to make a contribution
     shall not give rights under or to this Plan to
     require contributions.


Trust Agreement for the Plan

     On November 15, 1984, the managing partner of the

partnership also established a trust as part of the plan

by executing the Trust Agreement For the RSSM/ATS Defined

Benefit Pension Plan (the trust agreement).   Mr. Stein is

designated therein as the sole trustee of the trust, and he

executed the trust agreement in that capacity.    The trust

agreement provides that the trust is to be construed,

administered, and enforced, to the extent not preempted by

applicable Federal law, in accordance with the laws of the

Commonwealth of Pennsylvania.

     The trustee's powers included the power to retain,

purchase, sell, convey, or transfer property, and to vote

either in person or by proxy any stocks, bonds, or other

securities held in the fund.    One of the powers given to

the trustee under the trust agreement is the power:
                           - 6 -

     to cause any investment in the Fund to be
     registered in, or transferred into, the Trustee's
     name or the name of a nominee or nominees or to
     retain any such investment unregistered or in
     form permitting transfer by delivery, provided
     that the books and records of the Trustee shall
     at all times show that all such investments are
     part of the Fund;


In section 8.1, Article VIII, the trust agreement imposes

the following record keeping and reporting requirements on

the trustee:


          8.1 The Trustee shall keep a record of all
     his proceedings and acts with respect to the
     Plan, and shall keep all such books of account,
     records, and other data as may be reasonably
     necessary for the proper administration of the
     Plan. In compliance with the applicable laws,
     the Trustee or his agents shall furnish the
     Company [i.e., the partnership] and each
     Participant covered under the Plan and each
     beneficiary who is receiving benefits under the
     Plan and to every other person required by law
     to be so informed such information as may be
     required of the Trustee by any applicable law or
     regulation. Within one hundred twenty (120) days
     following the close of each fiscal year of the
     Fund or following the close of such other period
     as may be agreed upon between the Trustee and the
     Company, and within ninety (90) days or such
     other agreed upon period unless such period be
     waived after the removal or resignation of the
     Trustee as provided for in Section 10.1 hereof,
     the Trustee shall file with the Company a
     certified written report setting forth all
     investments, receipts and disbursements, and
     other transactions effected during such fiscal
     year or other annual period or during the period
     from the close of the preceding fiscal year or
     other preceding period to the date of such
     removal or resignation, including a description
                            - 7 -

     of all securities and investment purchases and
     sales with the cost or net proceeds of such
     purchases or sales and showing all cash,
     securities and other property held at the close
     of such fiscal year or other period, valued
     currently as provided in Section 9.1, and such
     other information as may be required of the
     Trustee under any applicable law. Upon the
     expiration of ninety (90) days from the date of
     filing such annual or other account, the Trustee
     shall, to the extent permitted by law, be
     released and discharged from any liability or
     accountability to anyone as respects the
     propriety of its acts or transactions. The
     Committee or Company shall have the right to
     demand or be entitled to any further or different
     accounting by the Trustee, but no participant or
     beneficiary or any other person shall have the
     right to demand or be entitled to any accounting
     by the Trustee, other than those to which they
     may be entitled under the law. Nothing contained
     herein will be construed or interpreted to deny
     the Trustee the right to have his account
     judicially determined.


The record of this case contains no books of account,

records, or other data that were prepared by or on behalf

of the trustee or maintained by the trustee as a record

of his proceedings and acts with respect to the plan.

     The trust agreement requires the trustee to make an

annual valuation of the assets held on behalf of the plan

and to report that value to the partnership and the

committee in accordance with paragraph 8.1, Article VIII,

quoted above.   The record of this case does not contain any

such valuation of plan assets.
                            - 8 -


The Steins' Broadcort Account

     Mr. Stein and his wife opened a brokerage account with

Broadcort Capital Corp. (Broadcort) sometime in January

1987.   The account was in the name of Mr. Stein and his

wife as joint tenants with rights of survivorship.

Steinberg & Lyman, a New York brokerage firm, acted as

agents of Broadcort, and Mr. Stein dealt with a vice

president of Steinberg & Lyman, Mr. Charles Tessarini,

and his assistant Ms. Janice Murphy.    The Steins received

monthly statements of transactions in their account about

2 to 3 weeks after the close of each accounting period.

     The statement for the period beginning March 28, 1987,

and ending April 24, 1987, reports that on April 15, 1987,

4,000 shares of stock of Saztec International, Inc.

(Saztec), were sold for $31,998 or $8 per share, and on

April 23, 1987, another 500 shares of Saztec stock were

sold for $3,973 or $8 per share.    Saztec was publicly

traded on the NASDAQ.   As of April 25, 1987, 5,500 shares

of Saztec stock remained in the Steins' account.    The

statement also reports the purchase on April 1, 1987,

of 4,000 shares of Texcel International, Inc. (Texcel)

stock for $32,502 or $8.125 per share, and it reports the
                           - 9 -

purchase on April 2, 1987, of 500 shares of UTS Total Resh

Corp. (UTS) for $2,500 or $5 per share.


Alleged Assignment of Saztec Stock to the Plan

     On April 7, 1987, Mr. Stein executed a document

entitled Reimbursement And Contribution Agreement For the

RSSM/ATS Defined Benefit Pension Plan (the contribution

agreement), which provides as follows:


     I, Arland T. Stein, do hereby assign and trans-
     fer to Reed Smith Shaw & McClay, as of April 6,
     1987, two thousand (2000) shares of Sactec [sic]
     International Common, the same being free and
     clear of any and all encumbrances, in full and
     complete satisfaction of any and all obligations
     that I have under agreements to reimburse Reed
     Smith Shaw & McClay for any amounts that Reed
     Smith Shaw & McClay becomes liable, whether
     directly or indirectly, to contribute to any
     defined benefit pension plan under which I am
     accruing benefits.

          Reed Smith Shaw & McClay does hereby accept
     the assignment of two thousand (2000) shares of
     Sactec [sic] International Common in complete
     satisfaction of Arland T. Stein's obligations to
     make whole Reed Smith Shaw & McClay for any and
     all amounts for which Reed Smith Shaw & McClay
     may be obligated to contribute to any defined
     benefit pension plan under which Arland T. Stein
     is covered and is accruing benefits. Further,
     Reed Smith Shaw & McClay does hereby assign and
     transfer, in full and complete satisfaction of
     any and all of its obligations and requirements,
     whether arising directly or indirectly, under
     either law or agreement, to make contributions to
     the RSSM/ATS Defined Benefit Pension Plan. Such
     assignment and transfer is to be effective as of
     April 6, 1987, and such contribution shall be the
                           - 10 -

     full contribution for the calendar year ending
     December 31, 1986. The Trustee of the RSSM/ATS
     Defined Benefit Pension Plan has acknowledged
     receipt of such assignment and transfer of the
     2000 shares of Sactec [sic] International Common
     by his signature affixed hereto.

          Arland T. Stein, Reed Smith Shaw & McClay,
     and the Trustee of the RSSM/ATS Defined Benefit
     Pension Plan agree and concur that the per share
     value of such Sactec [sic] International Common
     stock on April 4, 1986, was $8.25, and that
     therefore the full value of all assignments and
     transfers herein described is equal to $16,500.


     On the same date, Mrs. Helen Stein ratified

Mr. Stein's alleged assignment and transfer to the

partnership of 2,000 shares of Saztec stock by executing

a document entitled Ratification and Assignment

(ratification).   The ratification provides as follows:


     I, Helen M. Stein, do hereby release and ratify
     the assignment and transfer to Reed Smith Shaw
     & McClay, as of April 6, 1987, of Two Thousand
     (2,000) shares of Saztec International, common,
     and do hereby release and assign any residual
     right that may remain to me to Reed Smith Shaw
     & McClay in fee and in accordance with the
     assignment and transfer of my husband, Arland
     T. Stein.


The value of 2,000 shares of Saztec stock on April 4, 1987,

was $16,500 or $8.25 per share, the value assigned to the

stock by the contribution agreement.
                             - 11 -

     The contribution agreement and ratification do not

identify any specific shares of Saztec stock, such as by

CUSIP number, location, or in any other manner.   As

mentioned above, the brokerage statement for the Steins'

Broadcort account for the period ending April 24, 1987,

shows that there were 10,000 shares of Saztec stock held in

the Stein's Broadcort account on April 7, 1987, and 5,500

shares in the account on April 25, 1987.

     Mr. Stein did not maintain an account with Broadcort

in his capacity as trustee of the trust.   Mr. Stein

maintained an account with Drexel Burnham Lambert in his

name as trustee of the trust.    The partnership did not have

an account with Broadcort.

     Mr. Stein did not send written instructions to

Broadcort or its agent, Steinberg & Lyman, informing

Broadcort of the assignment of 2,000 of the 10,000 shares

of Saztec stock in the Steins' personal account to the

pension trust or asking that a separate account be

established in the name of the trust and that 2,000 shares

of Saztec stock be transferred from the Steins' personal

account to that separate account for the trust.   Neither

Broadcort, Steinberg & Lyman, nor any of their employees

issued an acknowledgment or written confirmation to
                           - 12 -

Mr. Stein, the partnership, or the trust that 2,000 shares

of Saztec stock had been or would be transferred from the

Steins' personal account to the trust.


The Steins' Lawsuit for Unauthorized Trading

     Three or four months after the execution of the

contribution agreement, the Steins came to believe that

Steinberg & Lyman or Broadcort or both were trading stocks

in their Broadcort account without their authorization.

In 1988, the Steins filed a lawsuit in the U.S. District

Court for the Western District of Pennsylvania against

Broadcort, Steinberg & Lyman, Mr. Tassinari, Ms. Janice

Murphy, and others.   The complaint and amended complaint

allege unauthorized trading, breach of agency, breach of

implied contract, breach of fiduciary duty, fraud and

deceit, violation of the Pennsylvania Securities Act, and

negligence.   The alleged unauthorized trading involved

shares of stock of a company, Criticare Systems, Inc., for

which Steinberg & Lyman allegedly was the underwriter and

market maker.   It did not involve shares of Saztec stock.

The complaint and amended complaint allege that the

following unauthorized trades, involving the shares of

Criticare Systems, Inc., had taken place:
                                 - 13 -

                          Number       Price
 Date         Trans.     of Shares   Per Share      Cost     Proceeds

 7/29/87      Sale          95            $6.25       --       $595.75
 9/16/87      Purchase   5,000             9.00    $45,000      --
 9/30/87      Purchase   5,000            10.25     51,252      --
11/05/87      Purchase   5,000            10.25     51,252      --
11/20/87      Sale       9,000             4.375      --     39,364.00



     The Steins brought the above suit in their individual

capacities.      The trust was not a party to the suit, and no

mention is made therein of Broadcort's or Steinberg &

Lyman's alleged failure to transfer the 2,000 shares of

Saztec stock to the trust.

     Before filing suit, the Steins entered into a

"standstill" agreement with Broadcort and/or Steinberg

& Lyman which purportedly prohibited Broadcort and its

agents from selling the stocks in the Steins' account.              The

standstill agreement is not contained in the record of this

case.      Apparently, the standstill agreement covered all of

the stock in the Steins' Broadcort account, including the

2,000 shares of Saztec stock that Mr. Stein had allegedly

transferred to the trust.        There is no evidence that the

trust was a party to this agreement.           The standstill

agreement was backed by a letter of credit in the amount

of $150,000 that Mr. Stein obtained on September 30, 1988,
                            - 14 -

from Pittsburgh National Bank.    The letter of credit was

secured by a mortgage on the Steins' home.

     The Steins' litigation continued from 1988 until 1992.

Sometime in April 1991, Broadcort sold all of the stock in

the Steins' personal account, including 3,500 shares of

Saztec stock that were in the account at that time.    We

note that this is 2,000 shares less than the number of

Saztec shares held in the account on April 25, 1987.      The

record does not explain how or when the 2,000 shares were

disposed of.    The 3,500 shares of Saztec stock were sold

for approximately $4 a share.    Broadcort retained all of

the cash realized from the sale of stock in the Steins'

account.

     In April 1992, Mr. and Mrs. Stein agreed to settle

their suit against Steinberg & Lyman, Broadcort, and

others.    The terms of the settlement are confidential

and are not contained in the record of this case.    When

Mr. Stein received the proceeds of the settlement, he

allegedly took a portion of the proceeds that he considered

to be related to 2,000 shares of Saztec stock (the record

does not state how much) and placed that amount into an IRA

rollover account.    Mr. Stein had created the IRA rollover

account in 1988 when the subject pension plan terminated
                            - 15 -

and all of the plan's assets were distributed into the IRA

rollover account.


The Partnership's Return Position

     On its Form 1065, U.S. Partnership Return of Income,

for 1986, the partnership deducted total contributions to

defined benefit plans on behalf of its partners in the

amount of $1,212,474.90.    Of that amount, $20,611 had

allegedly been contributed to Mr. Stein's defined benefit

plan, a contribution of $4,111 made to the plan on June 24,

1986, and the alleged contribution of 2,000 shares of

Saztec stock, valued at $16,500, described above.

     Respondent issued a timely notice of FPAA to the tax

matters partner.    In the notice, respondent adjusted the

deduction claimed by the partnership for contributions to

defined benefit pension plans, from $1,212,475 to

$1,195,975.   Thus, respondent disallowed the partnership's

deduction of $16,500, the value of the shares of Saztec

stock which the partnership claimed to have contributed to

the plan.   The notice describes this adjustment as follows:


     The contribution of $16,500 deemed to have been
     made to the Reed Smith Shaw & McClay/Arland T.
     Stein Defined Benefit Pension Plan (No. 125) is
     disallowed because you have failed to establish
     that the contribution [of] 2,000 shares of
                           - 16 -

     Saztec International Common was paid into the
     plan within the meaning of Section 404 of the
     Internal Revenue Code.


                          OPINION

     The issue for decision is whether the partnership is

entitled to deduct $16,500 on its 1986 return, pursuant to

section 404(a), for an alleged contribution of stock to a

defined benefit plan established for one of its partners,

Mr. Arland T. Stein.   Respondent disallowed the deduction

in the subject notice of FPAA, and the tax matters partner

bears the burden of proving that this adjustment to the

partnership's 1986 return is wrong.   Rule 142(a).   All Rule

references are to the Tax Court Rules of Practice and

Procedure.

     Under section 404(a)(1)(A), contributions to a

qualified plan are deductible only "In the taxable year

when paid".   See also secs. 1.404(a)-1(c), 1.404(a)-3(a),

Income Tax Regs.   However, section 404(a)(6) provides that

a payment is deemed to have been made on the last day of

the preceding taxable year if it is made on account of

such taxable year and "is made not later than the time

prescribed by law for filing the return for such taxable

year (including extensions thereof)."   In this case, the
                            - 17 -

partnership's return for the 1986 taxable year was due on

or before April 15, 1987.   See sec. 1.6031-1(e)(2), Income

Tax Regs.   The return was filed at that time with no

extensions.   Accordingly, in this case the tax matters

partner must demonstrate that the partnership paid the

2,000 shares of Saztec stock to the trust on or before

April 15, 1987.

     For purposes of section 404(a)(1) and (6), the terms

"paid" and "payment" mean that all taxpayers, regardless of

their method of accounting, must pay cash or its equivalent

within the statutory deadline in order to qualify for the

section 404(a) deduction.   See Don E. Williams Co. v.

Commissioner, 429 U.S. 569, 579 (1977).   In the Don E.

Williams Co. case, the Court explained:


     The statutory items "paid" and "payment," coupled
     with the grace period and the legislative
     history's reference to "paid" and "actually
     paid," demonstrate that, regardless of the method
     of accounting, all taxpayers must pay out cash or
     its equivalent by the end of the grace period in
     order to qualify for the § 404(a) deduction.

          This accords, also, with the apparent policy
     behind the statutory provision, namely, that an
     objective outlay-of-assets test would insure the
     integrity of the employees' plan and insure the
     full advantage of any contribution which entitles
     the employer to a tax benefit. [Id. at 578-579.]
                            - 18 -

       We have applied the objective outlay-of-assets test

in a number of cases.    For example, we have held that an

employer's accrual on its books of its liability for a

plan contribution does not constitute "payment" of the

contribution for purposes of section 404(a).    See Gillis

v. Commissioner, 63 T.C. 11 (1974).    Similarly, we have

held that there was no "payment" under section 404(a)

when an employer merely designated on its books and on

the books of the plan that a portion of a certificate of

deposit belonged to the plan.    See Rollar Homes, Inc.

v. Commissioner, T.C. Memo. 1987-166.    An employer must

irrevocably set aside the contribution for the plan

or remove the contribution from the employer's direct

control in order to qualify for a deduction under section

404.    See Gillis v. Commissioner, supra at 17; Rollar

Homes, Inc. v. Commissioner, supra.     In Gillis v.

Commissioner, supra at 17, we stated:


       Congress has hedged deductions for deferred
       compensation with a host of requirements which
       are designed to assure, as a condition to
       deductibility, that the funds are irrevocably
       set aside for the employee-beneficiaries'
       benefit within prescribed periods of time.
       Otherwise, the payments might never be made
       in cases of insolvency, bankruptcy, or other
       unforeseen conditions. * * *
                           - 19 -

We have allowed a deduction under section 404(a)(1)

where the employer presented credible evidence that the

contribution had been transferred to a trust account for

the plan.   See Busch v. Commissioner, T.C. Memo. 1983-98,

affd. 728 F.2d 945 (7th Cir. 1984).

     At the outset, we note that none of the shares of

Saztec stock that were owned by the Steins on April 7,

1987, when they executed the contribution agreement and

ratification were ever transferred into the name of the

partnership, into the name of the trust, or into

Mr. Stein's name as trustee of the trust.   In fact, all of

the stock in the Steins' Broadcort account, including the

Saztec stock, became subject to the standstill agreement

between the Steins and Broadcort and/or Steinberg & Lyman,

described above, and in April 1991 were sold by Broadcort.

Broadcort then retained the proceeds from the sale of that

stock, including all of the Saztec stock owned by the

Steins, when their account was liquidated, until April 1992

when Broadcort disbursed part or all of the proceeds to

Mr. Stein in connection with its settlement of the Steins'

lawsuit.

     Notwithstanding the above, the tax matters partner

argues that the partnership contributed the stock to the
                           - 20 -

plan prior to April 15, 1987, and is entitled to deduct

the value of the stock on its 1986 return.   The tax matters

partner claims that the partnership obtained the stock

from Mr. Stein, the sole participant of the plan, and

simultaneously contributed it back to Mr. Stein in his

capacity as trustee of the trust that formed a part of

the plan.   The tax matters partner claims that the

contribution took place on April 7, 1987, when Mr. Stein

and the partnership executed the contribution agreement

and Mrs. Stein ratified the agreement.

     As a preliminary matter, we must dispose of the tax

matters partner's factual contention that the broker,

Broadcort, and its agent, Steinberg & Lyman, failed to

follow Mr. Stein's instructions to transfer 2,000 shares

of Saztec stock from his personal account to a new account

for the trust.   The tax matters partner makes this factual

contention, based upon Mr. Stein's testimony at trial that,

after executing the contribution agreement, Mr. Stein

orally instructed the broker to open a new account in the

name of the trust and "to put the shares that were the

subject of this assignment in the separate account."    The

tax matters partner further claims that Mr. Stein inquired

of his broker and the broker's assistant and had "several
                           - 21 -

heated discussions" with them about why the transfer had

not been made.   The tax matters partner argues that the

failure of the broker and/or agent to follow Mr. Stein's

instructions "was not only inconsistent with their

relationship to Mr. Stein, but was fraudulent and probably

bordered on being criminal in nature."

     There is nothing in the record to corroborate

Mr. Stein's alleged instructions to his broker.     Neither

Mr. Stein, in his individual capacity or in his capacity as

trustee of the trust, nor the partnership issued a written

notification or instructions to the broker.     Neither

Mr. Stein nor the partnership ever sent the broker or its

agent a writing to confirm any such oral instructions.

The record contains no confirmation from the broker or its

agent regarding the alleged instructions.     Similarly, the

record contains no statement from the broker or its agent

on which the transfer is noted.     Significantly, the record

contains no books and records of the trust on which the

transfer is noted.   The record contains no valuation of

plan assets on which the transfer is reflected.     There is

no mention of this allegedly "fraudulent" or "criminal"

conduct in the Steins' lawsuit against the broker and its

agent, and the lawsuit was settled and no fraud or criminal
                           - 22 -

conduct on the part of Broadcort or its agent was ever

established.

     We note that Broadcort and its agent sold 4,500 shares

of Saztec stock from the Steins' account in April 1987,

presumably on Mr. Stein's instructions.   We are at a loss

to understand why Broadcort and its agent would follow

Mr. Stein's instructions to sell 4,500 shares of Saztec

stock from the Steins' account but would not follow his

instructions to put 2,000 shares into an account for the

trust.   Moreover, if legal title to the subject Saztec

stock had been transferred to the trust, as the tax matters

partner claims, and if Mr. Stein had notified his broker of

that fact before a dispute arose between them, we do not

understand why Mr. Stein would have entered into a

standstill agreement covering all of the stock in his

account, including the trust's 2,000 shares of Saztec,

and would have permitted the Saztec stock to remain in

his personal account in derogation of this instruction.

     In sum, we find nothing in the record to corroborate

Mr. Stein's testimony concerning the actions he allegedly

took to complete the transfer of the 2,000 shares of Saztec

stock to the trust or to establish the tax matters

partner's allegation that Broadcort and its agent acted
                           - 23 -

fraudulently or criminally.   Of course, we are not required

to accept the self-serving testimony of an interested

witness.   Tokarski v. Commissioner, 87 T.C. 74, 77 (1986);

cf. Jones v. Commissioner, T.C. Memo. 1997-368.    In this

case, we do not credit Mr. Stein's testimony on this point.

     The principal argument of the tax matters partner is

that execution of the contribution agreement and

ratification by themselves constituted an assignment by

Mr. Stein and his wife of "all of their right, title and

interest in and to 2,000 shares of Saztec to Petitioner."

The tax matters partner further describes the contribution

agreement as "an immediate assignment of all of

Petitioner's right, title and interest in those shares"

to the trustee of the subject defined benefit plan.

      The tax matters partner notes that the 2,000 shares

of Saztec stock were held in "street name" in the Steins'

account and argues that execution of the contribution

agreement was the only act required to transfer ownership

of the stock from Mr. and Mrs. Stein to the partnership and

from the partnership to the trust.   He further argues that,

after the contribution agreement was executed, the Saztec

stock was placed irrevocably beyond Mr. Stein's personal

control, and any action by Mr. Stein with respect to the
                           - 24 -

stock would constitute criminal conduct.   Thus, according

to the tax matters partner, the partnership received legal

title of 2,000 shares of Saztec stock from Mr. Stein and

made a timely contribution of the stock to Mr. Stein's

defined benefit plan.   Accordingly, the tax matters partner

argues, the partnership is entitled under section 404(a) to

deduct the value of the stock allegedly contributed to the

trust.

     The tax matters partner argues that this case is

governed by the opinion of the U.S. Court of Appeals for

the Third Circuit, the court to which an appeal would lie,

in Dick Bros., Inc. v. Commissioner, 205 F.2d 64 (3d Cir.

1953), revg. 18 T.C. 832 (1952).    In that case, the Court

of Appeals held that the taxpayer's contribution of a check

to an employee's pension trust was timely and that the

taxpayer was entitled to deduct the amount of the check.

According to the Court, the check and a transmittal letter

signed by the three members of the pension committee were

left with the taxpayer's treasurer, who was also a member

of the pension committee, on February 28, the day before

the contribution was due; viz, March 1.    By letter on

Monday, March 4, the trustee acknowledged receipt of the

check and letter from the pension committee.    This Court
                            - 25 -

had sustained the Commissioner's determination that the

contribution was untimely because it found "no evidence

to show that delivery of the check to the Trustee occurred

on or prior to the expiration of the statutory period on

March 1, 1946."    Dick Bros., Inc. v. Commissioner, 18 T.C.

at 835.    The Court of Appeals reversed this Court and held

that


       proof that the letter and check were given to
       Dick on the fifty-ninth day, when there remained
       ample time for the check to be delivered to the
       Trustee, either personally or in the ordinary
       course of the mails, within the sixty day limit,
       gave rise to a presumption that they were so
       delivered. Since there is no evidence in the
       record in the slightest degree inconsistent with
       this presumption, it must stand, and the taxpayer
       is entitled to the deduction.


Dick Bros., Inc. v. Commissioner, 205 F.2d at 66.     Thus,

the Court of Appeals utilized a presumption "'that every

man, in his private and official character, does his duty,

until the contrary is proved'".      Id. (quoting Bank of the

United States v. Dandridge, 25 U.S. (12 Wheat.) 64, 69

(1827)).

       The Court of Appeals also found that the employer

"delivered the check to the [pension] Committee and the

latter gave it to Dick 'for delivery' to the Trustee."
                           - 26 -

Id. at 68.   In view of the fact that the committee "was

part of the 'package' of the Trust", the Court held that

delivery of the pension fund check to the pension committee

"constituted delivery to the trust."   Id.

     Thus, the tax matters partner argues in the instant

case that delivery of the contribution agreement and

ratification to Mr. Stein, the trustee of the trust, had

the same effect as delivery of the check in Dick Bros.,

Inc. v. Commissioner, supra.   According to the tax matters

partner, the execution and delivery of the contribution

agreement and ratification transferred legal title to the

underlying stock from petitioners to the partnership and

back to Mr. Stein as trustee of the trust.

     We agree with the premise of the argument made by the

tax matters partner that the partnership must have received

and must have transferred legal title to the Saztec stock

to the trust.   Otherwise, if legal title to the underlying

stock was not transferred to the trust, it would be

difficult to find that the trust had received anything and

that there had been "an outlay of cash or other property"

as necessary in order to qualify for the section 404(a)

deduction.   See Don E. Williams Co. v. Commissioner, 429

U.S. at 578-579.
                            - 27 -

     We disagree with the tax matters partner that the

contribution agreement and ratification effect the transfer

of legal title to the Saztec stock to the partnership and

then to the trust.   First, as we read it, the contribution

agreement is not an unconditional assignment and transfer

of the underlying stock.   Under its terms, it operates only

to the extent that the partnership is obligated to make

contributions to the plan and Mr. Stein is obligated to

reimburse the partnership for those contributions.

However, as quoted above, section 8.2 of the plan document

states that the plan is entirely voluntary on the part of

the partnership and further states that "its continuance

and the payment of contributions hereunder are not assumed

as contractual obligations of the Firm [partnership] and

the Plan shall have no cause of action against the Firm."

We note that the partnership may be subject to excise tax

under section 4971 if there is an accumulated funding

deficiency for a plan year computed as of the end of the

plan year.   Secs. 412(a), 4971(a).   However, the disclaimer

further states that "The fact that the Firm becomes subject

to any tax or penalty by having failed to make a

contribution shall not give rights under or to this Plan to

require contributions."    In light of this disclaimer by the
                            - 28 -

partnership of any obligation to make a contribution to the

plan, we have difficulty reading the contribution agreement

as an unconditional assignment and transfer of the

underlying Saztec stock from the partnership to the trust.

     Moreover, the contribution agreement states that

Mr. Stein transferred the Saztec stock to the partnership

in satisfaction of his obligation to reimburse the

partnership for amounts that the partnership becomes liable

to contribute.    However, we find nothing in the plan

document or trust agreement that imposes such an obligation

on Mr. Stein.    The tax matters partner does not explain,

and it is not readily apparent to the Court, the legal

basis for Mr. Stein's obligation to reimburse the partner-

ship for its contributions to the plan.    Accordingly, we

have difficulty reading the contribution agreement as an

unconditional transfer of the underlying stock from

Mr. Stein to the partnership.

     Second, it is often noted that the nature of a

property right is determined under State law and the

treatment of the transfer of such a property right for

Federal tax purposes is determined under Federal law.

United States v. Mitchell, 403 U.S. 190 (1971); Morgan

v. Commissioner, 309 U.S. 78 (1940); Burnet v. Harmel,
                           - 29 -

287 U.S. 103 (1932); Autin v. Commissioner, 109 F.3d 231,

233-234 (5th Cir. 1997), revg. and remanding 102 T.C. 760

(1994); Estate of Vissering v. Commissioner, 96 T.C. 749,

755-756 (1991) ("It is virtually hornbook law that State

law determines the legal interests and rights created

by a trust instrument, while Federal law determines the

Federal tax consequences of those interests and rights."),

revd. and remanded on other grounds 990 F.2d 578 (10th

Cir. 1993).   The tax matters partner has not shown that

the partnership transferred legal title to 2,000 shares

of Saztec stock under Pennsylvania law prior to April 15,

1987.

     Section 8301 of the Pennsylvania Commercial Code

provides that on the "delivery" of a security, the

purchaser acquires the rights in the security which his

transferor had or had actual authority to convey.    13 Pa.

Cons. Stat. Ann. sec. 8301(a) (West 1984).   Section 8313 of

the Pennsylvania Commercial Code prescribes when delivery

of a security to a purchaser is deemed to occur.    See 13

Pa. Cons. Stat. Ann. sec. 8313 (West 1984); see also Wagner

v. Hart Chem. Co., 597 A.2d 1208 (Pa. Super. Ct. 1991),

alloc. denied 617 A.2d 1275 (Pa. 1992).   As applied to the
                            - 30 -

taxable year in issue, section 8313(a) of the Pennsylvania

Commercial Code provides:


     Delivery to a purchaser occurs when:

          (1) he or a person designated by him acquires
     possession of a security;

          (2) his broker acquires possession of a security
     specially indorsed to or issued in the name of the
     purchaser;

          (3) his broker sends him confirmation of the
     purchase and also by book entry or otherwise
     identifies a specific security in the possession
     of the broker as belonging to the purchaser;

          (4) with respect to an identified security to
     be delivered while still in the possession of a
     third person when that person acknowledges that he
     holds for the purchaser; or

          (5) appropriate entries on the books of a
     clearing corporation are made under section 8320
     (relating to transfer or pledge within a central
     depository system).


For purposes of section 8313(a) of the Pennsylvania

Commercial Code, the term "possession" means "physical"

possession of the security.   Wagner v. Hart Chem. Co.,

supra at 1215.

     In this case, the tax matters partner has not shown

that delivery of the Saztec stock was made to the trust

under section 8313(a) of the Pennsylvania Commercial Code

between April 7, 1987, when the contribution agreement was
                           - 31 -

executed and April 15, 1987, when the partnership filed its

1986 income tax return.   As discussed above, the Saztec

stock remained in the Steins' personal account until 1991.

Thus, neither the trust nor Mr. Stein, acting as trustee,

obtained physical possession of the stock.   Furthermore,

there is no evidence that the trust or Mr. Stein, acting

as trustee, designated Broadcort or its agent, Steinberg &

Lyman, to acquire possession of the Saztec stock on the

trust's behalf, and there is no evidence that Broadcort or

its agent recognized any interest of the trust in the

Saztec stock.   Thus, we cannot find delivery to the trust

under section 8313(a)(1) of the Pennsylvania Commercial

Code.   Similarly, there is no evidence that the Saztec

stock was specially endorsed to or issued in the name of

the trust.   Thus, we cannot find delivery to the trust

under section 8313(a)(2) of the Pennsylvania Commercial

Code.   Furthermore, neither Broadcort nor its agent sent

a confirmation that it was holding the stock on behalf of

the trust.   Thus, we cannot find delivery to the trust

under section 8313(a)(3) of the Pennsylvania Commercial

Code.   Finally, neither section 8313(4) or (5) of the

Pennsylvania Commercial Code is applicable to the facts

of this case.
                          - 32 -

     The tax matters partner has not established that the

partnership paid 2,000 shares of Saztec stock to the trust

on or before April 15, 1987.

     In light of the foregoing,


                                   Decision will be entered

                               for respondent.
