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purpose of funding a reserve for postretirement medical and life
insurance benefits.
In Parker-Hannifin Corp. v. Commissioner, supra, the
taxpayer argued that during its 1987 tax year it contributed
$26,913,158 for postretirement employee welfare benefits. The
taxpayer neither disclosed any assets set aside for
postretirement welfare benefits in its 1987 financial statements,
nor informed its employees of the existence or maintenance of
such assets. An internal document indicated that the 1987
contribution was expected to be depleted by benefit payments over
the 12 to 18 months following the creation of the VEBA Trust,
and, in fact, the contribution was depleted by the second month
of the taxpayer's 1989 year. During its 1988 year, petitioner
made no contributions to the VEBA trust, and in the following
years, only monthly contributions which approximated the monthly
welfare benefits paid were made to the trust. The ending balance
in the VEBA trust for each of the years 1989 and 1990 was zero.
The taxpayer's Form 1024, Application for Recognition of
Exemption, did not disclose the existence of a reserve. Although
such a disclosure was not required by the Code or the
regulations, the taxpayer's lack of disclosure, together with
other evidence, indicated that reserves did not exist. We
concluded that the taxpayer did not accumulate assets in the VEBA
trust for the purposes of establishing a reserve for the payment
of retiree welfare benefits.
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