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Under section 419A(a), “‘qualified asset account’ means any
account consisting of assets set aside to provide for the payment
of” certain benefits. In order to qualify as a deductible
contribution to a welfare benefit fund under section 419(a),
petitioner’s contribution must not exceed the qualified cost of
the fund, i.e., the qualified direct costs plus any qualified
asset account. Qualified asset accounts are generally subject to
an account limit, which for these purposes is the amount
reasonably and actuarially necessary to fund claims incurred but
unpaid as of the close of the taxable year in which the
contribution is made, and the related administrative costs. For
petitioner’s 1987 year, no benefits were paid out of the VEBA
Trust, and, thus, no qualified direct costs were incurred.
Petitioner argues that the $2.5 million contribution for
long-term disability is a qualified asset account and is
deductible.
The parties disagree as to the meaning of the phrase “assets
set aside” in the definition of qualified asset account.
Petitioner contends that the phrase does not require that a
“reserve” be established, pointing out that “reserve” is used
only in the context of postretirement benefits in section 419A.
Respondent argues that petitioner must actually set aside the
assets to include them in the qualified asset account and to
deduct the contribution.
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