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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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