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deduction in 1985, and that the VEBA was not liquidated until
1998, Mr. Bush estimated that the present value of petitioner's
tax savings on December 27, 1985, was $5,455,000.
On December 24, 1985, petitioner established the Connecticut
Mutual Life Insurance Company Holiday Pay Plan6 (holiday pay
plan), and on December 27, 1985, petitioner established the
Connecticut Mutual Life Insurance Company Employee Welfare
Benefit Trust (referred to herein as VEBA II or VEBA II trust).
Petitioner created the trust as a funding medium for its holiday
pay plan. On or about December 27, 1985, petitioner contributed
$20 million to the trust and deducted the entire contribution on
its 1985 Federal income tax return as an ordinary and necessary
business expense.
The holiday pay plan and the VEBA II trust essentially
provided for the following:
5(...continued)
provided that no part of the net earnings of the employer inures
(other than through such payments) to the benefit of any private
shareholder or individual. Sec. 501(c)(9).
On May 13, 1986, petitioner transmitted to the Internal
Revenue Service a completed Form 1024 (Application for
Recognition of Exemption Under Section 501(a) or for
Determination Under Section 120) for the VEBA II trust. On Jan.
13, 1988, the IRS recognized the tax-exempt status of the VEBA II
trust, determining that it qualified as a voluntary employees'
beneficiary association pursuant to sec. 501(c)(9).
6Petitioner amended the holiday pay plan on Dec. 31, 1985.
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