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“account limit” under section 419A(c) is only a mathematical
computation that limits the deduction, not a requirement that a
segregated reserve be included in the welfare benefit fund.
However, the VEBA Trust did not retain even general assets
that were sufficient to fund the reserves claimed by petitioner.
Thus, petitioner's position has the same shortcomings as the
position that the Court considered and rejected in General Signal
Corp. & Subs. v. Commissioner, 103 T.C. 216 (1994). In General
Signal, the taxpayer corporation argued that section 419A(c)(2)
did not require the establishment of a funded reserve in order
for an amount to be included in the account limit. Id. at 240.
Because of the taxpayer corporation’s “vehement assertion” that
“reserve funded” did not have a commonly understood meaning, the
Court looked to the legislative history of section 419A(c)(2) for
guidance and determined “that Congress intended section
419A(c)(2) to permit the accumulation of funds for purposes of
funding postretirement benefits.” Id.
The legislative history of section 419A states, in part:
Prefunding of life insurance, death benefits, or
medical benefits for retirees.--The qualified asset
account limits allow amounts reasonably necessary to
accumulate reserves under a welfare benefit plan so
that the medical benefit or life insurance (including
death benefit) payable to a retired employee during
retirement is fully funded upon retirement. These
amounts may be accumulated no more rapidly than on a
level basis over the working life of the employee, with
the employer of each employee. * * * The conferees
intend that the Treasury Department prescribe rules
requiring that the funding of retiree benefits be based
on reasonable and consistently applied actuarial cost
methods, which take into account experience gains and
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