Viability of Setting Up VEBA after Sale of Business

[Guest afreundlich]

Husband and wife own a business which operates within a C Corp. They sell all tangible and intangible assets related to the business and have a large gain in the C Corp. There are no employees remaining other than husband and wife to manage affairs of the C Corp that essentially has liquid investments. Advisor indicates that contributions to a VEBA estabished after the sale for the benefit of husband and wife are deductible and can reduce the tax impact of the gain on sale of the business. Seems like a problem because of lack of business purpose, ordinary and necessary business deductions, etc. Any thoughts or ideas?

[Kirk Maldonado]

Avoid VEBAs at all costs. I did a lot of them before the 1984 legislation, but I've never seen a single one that made economic sense since then, and I've probably seen close to 100 proposals. They are only good if you to spend a lot of money buying a lot of unnecessary insurance. If you just want to burn money, though, they are a great way to do it.

[Guest BobParks]

Like you I question the justification for a VEBA deduction. Unlike Kirk I am not inclined to make a sweeping statement to avoid VEBAs at all costs.

If the client's advisors were confident regarding the deduction for VEBA funding could withstand an audit, it would certainly reduce the value of the company by the amount of cash shifted to the VEBA which is desired. If the clients also needed insurance for estate tax or charitable giving a VEBA is quite good at that.

On this same section of message board under the title "VEBA - 419(f)(6)" there was a spirted discussion. The one thing I learned from that is that "no one position covers all of the bases." I'd invite the advisor to substantiate his position and spreadsheet the numbers before making a recommendation.