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Guest Ted Munice

Does anyone know the location (hopefully on-line) of a thorough discus

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Guest Ted Munice

Does anyone know the location (hopefully on-line) of a thorough discussion on the rules governing contribution limitations to VEBAs - particularly as they apply to pre-funding post-retirement medical and life insurance benefits? . My client is a privately=owned utility that is being required to pre-fund welfare benefits by their tae-making approval board. Also what are the filing requirements (if any) for a VEBA of this type?

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Guest Matt Tuttle

We set up similar types of plans. I don't know of a website that has what you are looking for but my site does have a discussion of IRC 162 which governs contributions to VEBA plans---www.wealthadvisors.bigstep.com. If you can give me some more details I may be able to put you in touch with our ERISA attorney to explore the issue further.

Matt Tuttle

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You might make sure that you review relevant cases, including:

General Signal Corp. v. Commissioner, Docket No. 97-4018, 2nd Cir. 1998

Square D Company v. Commissioner, 109 T.C. 200, U.S.T.C. 1997

Parker-Hannifin Corporation v. Commissioner, T.C. Memo. 1996-337, U.S.T.C. 1996

Connecticut Mutual Life v. Commissioner, 106 T.C. 445, U.S.T.C. 1996

In each of these the taxpayers lost tax deductions because of IRC Sections 419 and 419A.

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To: Matt

Since i was not aware of IRC 162 governing contributions to VEBAs, I visited your website, as suggested, but I was inable to find such a discussion there. Can you name the article or section of your website where this is discussed? Thank you.

To: vebaguru

The only places a taxpayer should be able to loose a tax deduction re a VEBA are 419 and 419A. I did not understand your reference to these sections. Are you saying that there is some other section under which they would not have lost their deductions?

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The cases referred to either apply the rules of IRC sections 419 or 419A to limit tax deductions of employers. They generally follow the IRS regulations under those sections. There are reasons why limits other than (or in addition to) those under IRC sections 419 or 419A may apply:

1. If the plan is fully insured under IRC section 79;

2. Because the amount is determined under IRC sections 79 (death benefit only plan) or 162 (non-death benefit welfare plan which is exempt from 419 and 419A due to 419A(f)(5) or (6).

3. Because the plan is a plan of life insurance policies under IRC section 264.

4. Because the plan is unfunded (not part of a "welfare benefit fund").

In your post you requested "a thorough discussion on the rules governing contribution limitations to VEBAs - particularly as they apply to pre-funding post-retirement medical and life insurance benefits". These cases provide that.

You state that your client, a utility, is "being required" to provide such benefits. As you will note from the laws and regulations, if the reason they are being required to fund such benefits is as required pursuant to a collective bargaining agreement, the limitations of 419 and 419A do not apply.

You also asked for filing requirements. An employer is required to file form 5500 for each welfare benefit plan each year. In addition, a VEBA trust is required to file form 990-P each year for the trust. In order to operate as a VEBA the trust must secure a letter of determination from the IRS. Although they may take more than 2 years to process such an application. To apply for such an approval, use IRS form 1024 (part of a 1024 booklet), including form 8718.

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