- 33 -
10 Smaller of (K - P) and (O + Q)
11 O + Q - R
3. Positions of the Parties
Petitioners assert that the reserve under section 419A(c)(2)
refers to the employer’s accrued liability to provide the
postretirement benefits. Petitioners maintain that, since the
entry age normal cost method is the only method that directly
computes an accrued liability and allocates the present value of an
employee’s future benefit over the employee’s entire working life,
the account limit for the reserve is equal to the accrued liability
computed under the entry age normal cost method. Petitioners
further maintain that (1) for a retiree the accrued liability is
the present value of the employee’s future benefits, and (2) for an
active employee the accrued liability is the present value of the
employee’s future benefits minus the present value of future normal
costs determined under the entry age normal cost method.
Petitioners contend that their contribution to the reserve for each
year at issue did not cause the reserve to exceed the account limit
and, therefore, the contributions were deductible under section
419.
Respondent argues that petitioners’ position is inconsistent
with (1) the language of section 419A(c)(2), (2) the established
judicial precedent interpreting that section, (3) Congress’s
purpose in enacting that section, (4) the accepted interpretation
given “nearly identical language” in the provisions governing
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