Square D Company and Subsidiaries - Page 31

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               As discussed infra, section 1.419-1T, Q&A-5(b)(1), Temporary           
          Income Tax Regs., 51 Fed. Reg. 4324 (Feb. 4, 1986), effectively             
          denies the prefunding of claims by using differing taxable year             
          ends.  In an internal memorandum dated April 23, 1986, petitioner           
          recognized that that regulation could close the "loophole created           
          by the statute's ambiguity."  During 1986, petitioner increased             
          its section 419A account limit by allegedly creating a reserve              
          for PRMB's under section 419A(c)(2).  Wyatt, petitioner's                   
          actuary, calculated that the present value of petitioner's                  
          PRMB's, as of December 1, 1986, for retirees was $20,446,059, and           
          for current active employees was $46,699,569, the deductible                
          portion of which was $4,945,000.  Accordingly, in Wyatt's view              
          the total deductible cost of PRMB's for petitioner's tax year               
          ending December 31, 1986, was $25,391,059.  The associated                  
          administrative expenses were $1,650,419, which is 6.5 percent of            
          the deductible PRMB's, and when they are added to the cost of the           
          PRMB's, the total is $27,041,478.                                           
               On December 30, 1986, petitioner contributed $27 million to            
          the VEBA Trust.  That contribution was the only one made to the             
          VEBA Trust during the 1986 calendar year.  The balance of the               
          VEBA Trust on December 31, 1986, was $35,058,670.  During the               
          1987 Plan year, the VEBA Trust paid benefit claims, including               
          related expenses, of $31,572,854.  During the 1987 Plan year,               
          only $2,787,000 was paid by the VEBA Trust for benefit claims of            






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