- 15 -
of petitioner's annual holiday pay obligations. We believe this
is a very conservative estimate considering the fact that average
annual holiday pay covered by the plan for the years 1986 through
1994 was approximately $2 million. At that rate, the $20 million
fund would last for 10 years even if it generated no investment
income. In fact, investment earnings from VEBA II have covered
over 80 percent of petitioner's holiday pay obligations between
1986 and 1994.10
Petitioner, nevertheless, argues that its contribution
should be deductible because it is the employees, rather than
petitioner, who benefited from the creation of the VEBA and that
any future benefit to petitioner was merely incidental. In
support of its position, petitioner relies on two prior decisions
of this Court in which we permitted employers to deduct VEBA
contributions pursuant to section 162(a).
In Moser v. Commissioner, T.C. Memo. 1989-142, affd. on
other grounds 914 F.2d 1040 (8th Cir. 1990), we held that a
corporation was entitled to a deduction pursuant to section
162(a) for a $200,000 contribution to a VEBA created to provide
members with death benefits, sick and accident benefits, and
10Petitioner has avoided using any of the original principal
to pay its holiday pay obligations. Since 1987, the annual
investment earnings from the VEBA II trust have been insufficient
to cover the total annual cost of petitioner's holiday pay
obligations. To make up the difference, petitioner has either
transferred funds from VEBA I or VEBA III or funded the
difference itself.
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