Tax · Primary-source case analysis

Don E. Williams: A Promissory Note Was Not a Paid Pension Contribution

By Aneeta Mishra and Timothy Chan

Published August 11, 2026

Don E. Williams Co. v. Commissioner concerned year-end deductions claimed after a closely held corporation delivered interest-bearing, fully secured demand notes to the trustees of its qualified employee profit-sharing plan and later paid the notes by check.

The employer accrued a contribution and delivered its own notes

For three fiscal years the corporation authorized contributions of about $30,000, accrued the liabilities, and delivered interest-bearing demand notes guaranteed by its officers and secured by collateral. The notes were paid by check within the following year.

Section 404 required an amount actually paid

The Court read the statutory terms paid and payment, the grace period, and legislative history to require cash or its equivalent by the applicable deadline regardless of the employer’s accrual method.

The maker’s note remained only a promise

Although a valuable note can be income to a recipient in other settings, the corporation’s own note did not itself transfer cash or other property out of the corporation. Full security and demand terms did not turn the promise into payment.

The claimed earlier-year deductions were denied

The Court affirmed the disallowance of deductions for the years in which the notes were delivered; deductions followed the later checks. Current qualified-plan contributions must satisfy the present Code, plan terms, funding rules, and tax-year deadlines.

Key takeaways

• Distinguish a bookkeeping accrual from an actual transfer to the plan.
• Verify the statutory deadline and grace-period rule for the employer’s tax year.
• Do not assume a secured demand note is the cash equivalent of a paid contribution.
• Coordinate deduction timing with current sections 401 and 404, plan administration, and funding requirements.