- 30 -
In the instant case, respondent's position, simply stated,
is that, considering all of the evidence, petitioner did not
create a reserve.
The VEBA Trust was created by petitioner during 1982. One
of its purposes was to accelerate the company's deduction for
CIBU's. During 1985, petitioner recognized that statutory
amendments made by DEFRA, which did not become effective until
January 1, 1986, would tighten the limitations governing the
deduction of contributions to VEBA trusts. An internal
memorandum dated December 17, 1985, indicates that petitioner
believed that prefunding the VEBA Trust would allow an
acceleration of $36,500,000 of 1986 expenses into 1985,
producing, assuming continued contributions to the trust, a
permanent deferral of taxes. The memorandum also notes that if
tax reform legislation produced a corporate tax decrease,
prefunding would produce additional tax benefits. Petitioner
funded the VEBA Trust with contributions totaling $37,600,000
during December 1985. That contribution was the only
contribution made to the VEBA Trust during its year ending
November 30, 1986. The VEBA Trust's beginning balance on
December 1, 1985, of $1,835,475, its investment income of
$360,578, and the December contributions were used to pay
medical, dental, accident, sickness, and long-term disability
benefits under the plan as they were incurred during the year,
leaving a yearend balance of $11,297,108 on November 30, 1986.
Page: Previous 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 NextLast modified: May 25, 2011