This section contains the nature of the case and procedural background.

Drescher (P) was an officer and director of Bausch. Bausch purchased a single premium annuity in each of the taxable years naming P as the annuitant. The Commissioner contends that the cost of these annuities was additional compensation for P in the year that the contract was purchased. Bausch had inaugurated a plan to provide for voluntary retirement at the age of 65. To that end, the company purchased annuities starting in 1939 for the officers which were delivered to Bausch who was to retain possession until the annuitant reached 65. The premium paid for each policy was $5,000. P’s salary was not reduced, and P was not given the option to get the monies spent on the annuity in cash. P was a cash basis taxpayer, and Bausch was an accrual basis taxpayer. The policies were guaranteed for life income with a minimum payment of 120 months with the guarantee payable to a beneficiary if the annuitant died before getting the guaranteed amount. There was an acceleration clause but Bausch retained possession of the policies, and that option could not be exercised. P had the right to change beneficiaries, and the contract could not be assigned, and all payments were to be free from creditors. There was no cash surrender value, and it was not salable and had no loan value, and there was no entitlement to distribution of any surplus. The trial court ruled for P.

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