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expenses. It is clear that petitioner's $20 million contribution
to VEBA II for the purpose of funding its future holiday pay
obligations resulted in a substantial future benefit.
Contributions that provide taxpayers with substantial, as opposed
to merely incidental, future benefits must be capitalized.
INDOPCO, Inc. v. Commissioner, supra at 87.
Nevertheless, petitioner contends that deductions of this
sort must necessarily be allowed for taxable years prior to 1986.
Petitioner argues that Congress enacted sections 419 and 419A,
applicable to years after 1985, to prohibit the type of deduction
at issue here. Sections 419 and 419A generally restrict
deductions for contributions made to welfare benefit funds to the
year that benefits are actually paid out to employees. See
Schneider v. Commissioner, supra. Petitioner points to a
discussion at the end of our opinion in Schneider v.
Commissioner, supra, where we rejected the Commissioner's
argument that the taxpayer's contributions were not deductible
until paid out by the plans as benefits. We remarked that "the
statute [section 162] was amended by the enactment of sections
419 and 419A to bring about that result in the case of
contributions made after 1985", Schneider v. Commissioner, supra,
and we quoted from the House report, which explained that the
enactments resulted from Congress' belief "'that the current
rules under which employers may take deductions for plan
contributions far in advance of when the benefits are paid allows
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