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were irrevocable and could not revert to petitioner under the
terms of the Trust Agreement.
The VEBA Trust uses the cash method of accounting and has a
fiscal year ending June 30. The VEBA Trust qualifies as a
welfare benefit fund under section 419(e). The Parker-Hannifin
Group Insurance Plan and the Long-Term Disability Plan for
Salaried Employees of Parker-Hannifin Corporation were funded by
the VEBA Trust.
Pursuant to an administrative services agreement dated
February 24, 1981, Provident Life and Accident Insurance Company
(Provident) agreed to provide administrative services for certain
of petitioner’s employee benefits. Provident continued to
provide such services during the year in issue.
On June 30, 1987, petitioner contributed $42 million (the
1987 contribution) to the VEBA Trust. Effective July 1, 1987,
the maximum Federal corporate income tax rate decreased from 46
to 34 percent. Petitioner’s 1987 contribution to the VEBA trust
included the following amounts:
Incurred but unpaid medical, dental, &
short-term disability benefits 1$9,022,227
Administration fees 2479,089
Long-term disability benefits 2,500,000
Union medical benefits 3,210,991
Postretirement benefits
Retirees 10,779,650
Active employees 16,133,508
Total 3$42,125,465
1Respondent has allowed a deduction for this amount.
2Respondent has allowed a deduction for this amount.
3Petitioner’s chief financial officer suggested
rounding the 1987 contribution to $42 million.
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