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direct cost for the year, plus any contributions to a QAA
reasonably necessary to fund CIBU's and/or to provide a reserve
for postretirement medical or life insurance benefits. Secs. 419
and 419A. The taxpayer in General Signal increased its VEBA
contributions during 1986 by making additions to a QAA, although
it did not intend the VEBA trust to establish a reserve for
postretirement benefits or accumulate assets for purposes of
funding a reserve. The taxpayer's additional QAA contributions
during 1986 and 1987 totaled $63,300,000. The VEBA trust's
balance increased by only $8,782,003 between November 30, 1986,
and November 30, 1988, while its financial statements showed
expenses for retiree liabilities of only $8,813,000.
Accordingly, of the $63,300,000 contributed to fund a reserve, at
least $45,700,000 ($63,300,000 less $8,782,003 and $8,813,000)
was used to pay active employee welfare benefits during 1987 and
1988. Additionally, the taxpayer made no disclosures on its
financial reports of the establishment or maintenance of reserves
for postretirement medical or life insurance benefits, nor did it
make any disclosure to its employees or their unions of the
establishment or maintenance of such reserves. Finally, the
taxpayer's Form 1024, containing projected yearend balances for
1986 through 1988, did not show reserves established for any
purpose. On the basis of all of the facts and circumstances, we
concluded that the VEBA trust did not accumulate assets for the
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