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OPINION
The issue for decision is whether petitioner is entitled to
a section 162(a) deduction for its $20 million contribution to
the voluntary employees' beneficiary association (VEBA II) trust
established to provide holiday pay to its employees.
Section 162(a) allows a deduction for all ordinary and
necessary business expenses paid or incurred during the taxable
year. With respect to deductions for employee benefits, section
1.162-10(a), Income Tax Regs., provides as follows:
Amounts paid or accrued within the taxable year for
dismissal wages, unemployment benefits, guaranteed
annual wages, vacations, or a sickness, accident,
hospitalization, medical expense, recreational,
welfare, or similar benefit plan, are deductible under
section 162(a) if they are ordinary and necessary
expenses of the trade or business. * * * [Emphasis
added.]
In order to qualify for deduction under section 162(a), five
requirements must be satisfied. The item must: (1) Be paid or
incurred during the taxable year; (2) be for carrying on a trade
or business; (3) be an expense; (4) be a "necessary" expense; and
(5) be an "ordinary" expense. Commissioner v. Lincoln Sav. &
Loan Association, 403 U.S. 345, 352 (1971). A capital
expenditure, in contrast, is not an "ordinary" expenditure within
the meaning of section 162(a) and is therefore not currently
deductible. Id. at 353; see sec. 263(a). Deductions from gross
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