The opinion
IRwin, /., dissenting: I respectfully disagree with the majority. In my opinion the delivery of petitioner’s interest-bearing secured promissory notes payable on demand constituted payment for the purposes of section 404(a). Unlike the majority I would find cash equivalence. Cf. Cowden v. Commissioner, 289 F. 2d 20, 24 (C.A. 5, 1961).
I would also dispute the majority’s finding for an additional reason. We have previously held that the delivery of property constitutes payment. Colorado National Bank of Denver, 30 T.C. 933 (1958). However, the majority summarily determines that since the notes are not property in the hands of the obligor they are not property. I suggest that the proper test of whether the notes constitute property should be directed to whether they are property in the hands of the holders, not the obligors. Cf. Denver & Rio Grande Railroad Co. v. United States, 318 F. 2d 922, 924 (Ct. Cl. 1963).
In determining that payment did not occur, the majority further relies upon the Uniform Commercial Code. Without considering the merits of their interpretation, I do not believe that the U.C.C. should be employed to determine whether payment has occurred for Federal income tax purposes. Whether the delivery of the promissory notes constituted payment for the purposes of section 404(a) is a matter of Federal tax law, not State'law. Cf. Morgan v. Commissioner, 309 U.S. 78 (1940).
It appears that there is implicit in the majority’s reasoning a desire to protect the employees under the plan. However, section 404(a) only requires payment, not payment in cash. In my opinion other provisions of the Code provide the fund with sufficient protection. See, e.g., secs. 401 (a) (2) and 503 (b). Furthermore, the legislative history of section 404(a) reveals only that Congress intended actual payment as a requisite to deduction, not payment in cash. See Logan Engineering Co., 12 T.C. 860, 867 (1949); Wasatch Chemical Co. v. Commissioner, 313 F. 2d 843, 845 (C.A. 10, 1963), for a discussion of the legislative history. While the majority relies upon P. G. Lake, Inc. v. Commissioner, 148 F. 2d 898, 900 (C.A. 5, 1945), for the proposition that the ordinary and usual meaning of the term “payment” is “to liquidate in cash,” a review of the cases cited in P. G. Lake reveals little foundation for such a proposition. P. G. Lalce involved constructive payment and the clear implication from the cases relied upon therein is that payment means to liquidate in cash or cash, equivalent. See, e.g., Helvering v. Price, 309 U.S. 409 (1940). In addition, I believe that the narrow definition adopted by the majority is not in harmony with the widespread use of commercial paper and I, therefore, cannot subscribe to it.
Finally, while the delivery of one’s own note as payment might, in substance, be viewed merely as a loan transaction, this factor should not necessarily affect the allowance of the deduction. It seems evident that a corporation may borrow from its pension fund and use the proceeds to meet its contribution requirements provided the transaction does not fall within the prohibitions of section 503. Viewing the instant situation in this light, respondent’s proper course of action should be through section 503, not section 404(a). I can find no legislative support or other compelling reason to restrict the meaning of the term “payment” as the majority has done.