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that return another $1,000 that was paid to PES for its
administrator services. In 1993, Neonatology contributed $21,623
to the plan on behalf of Dr. Mall and $250 for a “VEBA set-up
fee”. It deducted those amounts on its 1993 Federal corporate
income tax return as an employee benefit program expense, and it
deducted on that return $750 that it contributed to the plan and
$1,000 that it paid PES for its administrator services.
During the relevant years, the Neonatology Plan purchased
three life insurance policies, two on the life of Dr. Mall and
the third on the life of Mr. Mall.16 The attributes of these
policies are as follows.
1. Dr. Mall’s Inter-American C-Group Term Policy
Effective March 15, 1991, Inter-American issued a $650,000
C-group term policy (certificate No. 5076202) on the life of Dr.
Mall, age 45. The first-year premium was $9,906, and the cost of
insuring Dr. Mall for that year was $1,689.85. The Neonatology
Plan paid the first-year premium, and, at the end of that year,
the conversion credit balance was $8,585.88 ($9,906 - $1,689.85 +
$369.73); the $369.73 is the interest of 4.5 percent earned on
the conversion credit balance (($8,585.88 - $369.73) x 4.5% =
$369.73)). None of the conversion credit balance could have been
16 The Neonatology Plan also purchased one annuity during
those years. On or about Mar. 15, 1991, Inter-American issued to
the Neonatology Plan a Plus II Group Annuity (#C15576/91079) for
an initial premium of $69.
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