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Williams health care plan participants). On September 27, 1988,
the Commissioner of Internal Revenue determined that the Trust
was exempt from tax because it qualified as a voluntary employ-
ees’ beneficiary association described in section 501(c)(9). The
Trust maintained that qualification during the years at issue.
(We shall refer to a tax-exempt voluntary employees’ beneficiary
association described in section 501(c)(9) as a VEBA.)
The Trust agreement establishing the Trust provided in
pertinent part:
8.2 Payment of Benefits. * * * Any Trust Fund income
not used in the year in which it was earned to
provide life, sickness, accident or other benefits
described in Section 501(c)(9) of the Code and the
regulations thereunder or to pay reasonable admin-
istrative costs associated with the delivery of
those benefits shall be set aside to provide for
the payment of the benefits and benefit costs
described in Section 512(a)(3)(B)(ii) of the Code
and limited by Section 512(a)(3)(E) of the Code in
the immediately following year. * * *
The Trust derived its income from (1) member contributions
from Sherwin-Williams and Sherwin-Williams health care plan
participants and (2) investment income. The Trust set aside, and
subsequently expended, income to provide for the payment of
health care benefits and reasonable costs of administration
directly connected with providing for the payment of such bene-
fits. The amounts of income that the Trust set aside to provide
for the payment of reasonable costs of administration directly
connected with providing for the payment of health care benefits
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