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permits a deduction for the taxable year in which the contribution
is paid, subject to the limitation contained in section 419(b).
Section 419(b) limits the deduction for any taxable year to
the welfare benefit fund’s “qualified cost”.15 The fund’s qualified
cost is equal to the sum of the fund’s “qualified direct cost” for
the year, and, subject to the limitation of section 419A(b), any
addition to a “qualified asset account” for the year.16 Sec.
419(c)(1).
Section 419A(a) defines a qualified asset account as any
account consisting of assets set aside to provide for the payment
of (1) disability benefits, (2) medical benefits, (3) SUB
(supplemental compensation benefit) or severance pay benefits, or
(4) life insurance benefits. Additions to a qualified asset
account are included in the fund’s qualified cost only to the
extent they do not exceed the fund’s “account limit” for the
taxable year. Sec. 419A(b).
For purposes of the present case, the account limit includes:
(1) The amount reasonably and actuarially necessary to fund claims
that are incurred but unpaid as of the close of the taxable year
and related administrative costs and (2) the amount of an
15 A contribution to a welfare benefit fund in excess of
that year’s qualified cost is treated as a contribution by the
employer to the fund during the succeeding taxable year. Sec.
419(d).
16 The fund’s qualified cost for the taxable year is reduced
by the fund’s after-tax income for that year. Sec. 419(c)(2).
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