Connecticut Mutual Life Insurance Company and Consolidated Subsidiaries - Page 3

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          returns on a calendar year basis using the accrual method of                
          accounting.                                                                 
               During 1984, two of petitioner’s officers--Richard Bush2 and           
          Robert Chamberlain3--initiated discussions regarding VEBA's.                
          These discussions began with an analysis of the benefits of using           
          VEBA's to fund employee welfare benefits and eventually led to a            
          recommendation that a VEBA be created.                                      

          VEBA I                                                                      

               On December 28, 1984, petitioner established a VEBA trust              
          entitled the “Connecticut Mutual Life Insurance Company Voluntary           
          Employee Beneficiary Trust”.  This VEBA trust (VEBA I) was                  
          established to fund the cost of certain medical and group life              
          insurance benefits.  Petitioner's $7,293,225 contribution to VEBA           
          I funded benefits for 1 year.  Petitioner claimed a Federal                 
          income tax deduction for the entire contribution on its 1984                
          income tax return.                                                          

          VEBA II                                                                     

               Since its incorporation in 1846, petitioner has provided its           
          employees with annual fixed paid holidays.  Petitioner has never            

               2Mr. Bush had been an assistant counsel in petitioner’s                
          legal department since 1981.  In April 1985, Mr. Bush became an             
          assistant vice president in the corporate tax department.                   
               3During 1984, Mr. Chamberlain served as an assistant vice              
          president in petitioner's human resources department.                       




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