number release date id office uilc cca_2011063014301044 ---------------------------- from --------------------- sent thursday date pm to ------------------ cc ----------------------- subject re sec_6012 regulations question a representative is generally not authorized to sign a tax_return or claim_for_refund on behalf of a taxpayer unless the act is both permitted under the code and regulations and specifically authorized in the power_of_attorney form see conference and practice requirements sec_601_504 the conditions in sec_1_6012-1 must be met to have an agent sign an income_tax return on behalf of a taxpayer s if these conditions are not met the revenue_agent should request that the taxpayer send in signed returns please let me know if you want to discuss further


t c no united_states tax_court square d company and subsidiaries petitioner v commissioner of internal revenue respondent docket nos filed date during date p established a voluntary employees' beneficiary association veba which qualified for exemption under sec_501 i r c and as a welfare_benefit_fund wbf under sec_419 i r c during the initial years of the veba p contributed amounts to the veba to provide certain employee welfare benefits and for claims which were incurred but unpaid cibu's at yearend during p changed its veba yearend to nov while p retained a calendar yearend also during p began prefunding for benefits the veba was expected to provide in later years held p is not automatically entitled to the safe_harbor percentages of sec_419a and ii i r c in computing additions to its account limit for cibu's for the taxable years and 103_tc_216 followed held further p's cibu's for and are based upon stipulated percentages of its qualified direct costs for each year see sec_419a sec_3 held further the creation of a reserve under sec_419a i r c requires the accumulation of assets and does not result from the accrual of a liability general signal corp subs v commissioner supra followed held further because p's contributions to its veba during did not result in the creation of a reserve for postretirement medical benefits for its employees p is not entitled to an increase in its account limit for pursuant to sec_419a i r c with respect to that year held further the limit of sec_1_419-1t q a-5 b temporary income_tax regs fed reg date is valid robert h aland gregg douglas lemein taylor s reid tamara l frantzen maura ann mcbreen and brian k wydajewski for petitioner in docket no robert h aland gregg douglas lemein neal j block frederick edward henry iii maura ann mcbreen tamara l frantzen taylor s reid brett l gold and brian k wydajewski for petitioner in docket no lawrence c letkewicz and randall p andreozzi for respondent opinion wells chief_judge the instant cases were consolidated for purposes of trial briefing and opinion hereinafter referred to as the instant case the instant case is before the court on the parties' cross-motions for partial summary_judgment we must decide whether petitioner's contribution to its trust created as part of its voluntary employees' beneficiary association veba plan for the taxable_year is deductible specifically we must decide whether petitioner is entitled to the safe_harbor limits of sec_419a and ii in computing the addition to the qualified_asset_account for medical dental and short-term disability also referred to as accident and sickness benefit claims and associated administrative costs pursuant to sec_419a whether petitioner's dollar_figure million contribution to its veba trust during constituted a reserve funded over the working lives of the covered employees for postretirement medical benefits prmb's within the meaning of sec_419a and whether the limitation of sec_1_419-1t q a-5 b temporary income_tax regs fed reg date is valid background some of the facts and certain exhibits have been stipulated by the parties for the purpose of the instant motion the stipulation of facts is incorporated in this opinion by reference when its petition was filed petitioner's principal office was located in palatine illinois petitioner is a all code and section references are to the internal revenue code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure worldwide manufacturer of electrical distribution and control equipment and electronic materials components products and systems for industrial and construction markets petitioner is an accrual basis taxpayer and uses a calendar yearend prior to date petitioner's common_stock was traded on the new york stock exchange establishment of the veba trust on date petitioner established the square d company and subsidiaries employee welfare_benefit trust the veba trust to serve as the funding vehicle for a single welfare_benefit_plan known as the square d company and subsidiaries employee welfare_benefit_plan the plan the plan provided for medical dental accident sickness short-term disability and long-term disability benefits for eligible employees and retirees of petitioner and its subsidiaries the trustees of the veba trust were dexter s free james m vetta and donald e wilson all of whom are officers of petitioner the trust agreement authorized the establishment of a depository_account for trust assets funds of the veba trust were deposited in an account with first interstate bank of washington n a pursuant to a custodial agreement dated date the veba trust was a welfare_benefit_fund under sec_419 at all relevant times prior to petitioner funded the veba trust during each year for that year's employee benefit liabilities and administrative costs as they were incurred although it could also have made a contribution for the following year's expected liabilities petitioner also funded the veba trust at yearend for employee benefit claims that were incurred but unpaid cibu's and associated administrative costs based on actuarial assumptions made by prudential insurance co prudential petitioner's medical claims adjuster with respect to medical dental accident and sickness claims and the wyatt co wyatt petitioner's actuarial firm with respect to long-term disability claims those assumptions were then reviewed by petitioner's risk management department prior to the veba trust was not funded for any other liabilities petitioner contributed a total of dollar_figure to the veba trust between date and date as follows trust yearend amount of contribution date date date dollar_figure big_number big_number petitioner's veba trust contributions during date the veba trust filed with respondent a form_1128 to change its taxable_year from a calendar_year to a fiscal_year ending november this change was approved by respondent and became effective as of date an internal memorandum dated date from r g halliday a member of petitioner's tax department to dexter s free an officer of petitioner and trustee of the veba trust stated that the change in the trust year would allow the contribution to be made in december of future years thus providing a permanent deferral of the related tax_liability this change is necessary because the limit on the addition to a qualified_asset_account is tested at the trust's year end with the contribution in december a full year's funding could be made and therefore the addition to asset account limits would be satisfied at november and the deduction would still fall within square d's calendar_year conclusion the delay in the enactment of the more stringent funding requirements passed by the tax_reform_act_of_1984 has left open a window of opportunity that will be closed on date by accruing or actually making a payment to the veba square d will be able to accelerate a deduction which would otherwise be taken in the following year continuing this funding pattern in future years will allow square d in essence to receive a permanent deferral of tax on the amount an internal memorandum dated date from d s free to d e wilson and j m vetta states the tax department has proposed that the trust adopt a fiscal taxable_year ending november 30th in order to avoid the new limitation on pre-funding of the trust because the limit on additions to the trust's reserves is tested at the trust's year end the fiscal_year would allow the trust to meet the test as of november 30th which means square d could pre-fund its entire liability for the following year in december of the current_year pre-funding of the trust will allow square d to accelerate the recognition for tax purposes only of dollar_figure of expenses into assuming the company's contributions to the trust do not decline in future years we will have deferred payment of dollar_figure of taxes permanently if tax reform legislation produces a corporate tax decrease this plan will also produce a permanent tax_benefit petitioner did not change the nature or type of medical dental accident sickness and long-term disability benefits paid through the veba trust additionally petitioner did not change the procedures for payment of such benefit claims by the veba trust at the time the yearend was changed the veba trust's account balance at first interstate on date was dollar_figure on december and petitioner contributed dollar_figure and dollar_figure respectively to the veba trust on date petitioner contributed dollar_figure to the veba trust petitioner claimed a deduction on its federal_income_tax return for these contributions dollar_figure and other contributions made earlier during of the total deduction dollar_figure was disallowed by respondent as an amount in excess of petitioner's allowable deduction in accordance with the trust agreement the veba trust's assets including the date contributions and the veba trust's investment_income were used to pay medical dental accident sickness and long-term disability benefits and administrative costs under the plan to petitioner's employees and retirees as those benefits and costs came due during the plan_year no contributions were made to the veba trust from date through date the veba's account balance at first interstate on date was dollar_figure references to veba trust years after the yearend change include december of the previous year petitioner's veba trust contribution during petitioner became aware that the regulations might remove the benefit of the veba trust's yearend on november an internal memorandum dated date states the statute and the committee report could be interpreted as allowing the qualified_asset_account to be tested at the trust's year end therefore we changed the trust's year end to november 30th at november 30th the trust's reserves will always be low enough to meet the qualified_asset_account limit the trust can then be prefunded in december and a deduction for the contribution taken on square d's return for the calendar_year pursuant to the regulations the amount of an employer's deduction for contributions to a sec_501 year is now limited to the qualified_cost of the trust for the taxable_year of the trust which falls within the taxable_year of the employer thus there is no advantage to our trust having a november fiscal_year end as the qualified_cost test will always be applied as of square d company's calendar_year end in other words the new regulations will prevent square d company from prefunding the trust for and deducting the contribution in bob it is obvious the irs perceived the loophole created by the statute's ambiguity about whose taxable_year the trust's or the corporation's should be used to measure the qualified_cost has opened for taxpayers it remains to be seen whether the irs can correct this defect in the statute through regulations we are going to contact our legal counsel to see if there is any merit in challenging the regulations in the meantime we are proceeding under the assumption that square d company will not be allowed to deduct contributions to the trust in on date petitioner contributed dollar_figure million to the veba trust and claimed a deduction for the full amount of this contribution on its federal_income_tax return that dollar_figure million contribution was petitioner's only contribution to the veba trust during the calendar_year the amount of the contribution was based on an actuarial valuation by wyatt wyatt ascertained that the maximum deductible contribution for for prmb's was dollar_figure administrative expenses were considered to be percent of the prmb's or dollar_figure making the total deductible amount dollar_figure regarding the calculation of the deductible amounts a date letter to petitioner from wyatt stated the following as mentioned on the phone there are rulings several years old providing slim guidance to amounts which may be deducted for postretirement medical benefits in general deductible amounts are to be determined on an actuarial basis and are specified to be in one lump sum or alternatively over the remaining average lifetime for persons who are already retired and are specified as level amounts or percentages over the future working lifetimes for persons who are currently actively at work these rules would apparently permit the full dollar_figure to be deducted in for pensioners and approximately dollar_figure for currently active employees lesser amounts could of course be deducted for petitioner was obligated by the plan to pay all medical dental accident sickness and long-term disability benefits offered under the plan the veba trust used its assets including the contribution and its investment earnings to pay such benefits and administrative costs to petitioner's employees and retirees as those benefits and costs came due or arose during the next months of the plan_year during the calendar_year the veba trust paid medical and dental benefit claims under the plan for retirees in the amount of dollar_figure during the plan_year the veba trust paid benefit claims including related expenses in the amount of dollar_figure the veba trust's balance at first interstate on date was dollar_figure the balance on date was dollar_figure the parties have stipulated that the addition to the account limit for cibu's for the trust year ended date if based on the safe_harbor limits of sec_419a is dollar_figure plus dollar_figure of related administrative costs and if not based on the safe_harbor limits is dollar_figure plus dollar_figure of related administrative costs the parties also stipulated an increase pursuant to sec_419a in the amount of dollar_figure petitioner's veba trust contribution pursuant to an amendment to the veba trust agreement on date employee welfare benefits for collectively bargained employees ceased to be funded through the veba trust and were thereafter funded through a separate veba trust for collectively bargained employees on date petitioner contributed dollar_figure to the veba trust and dollar_figure to the veba trust for the collectively bargained employees the amounts contributed to the veba trust for the collectively bargained employees are not in issue in the instant case petitioner calculated the amount of the contribution based on an actuarial valuation by wyatt wyatt ascertained as of date that the maximum deductible combined contribution for for postretirement medical benefits was dollar_figure of that amount dollar_figure was attributable to employees and retirees not covered by collectively bargained agreements in its report dated date wyatt stated the maximum_tax deductible contribution for is equal to dollar_figure plus the any sic contributions for postretirement medical paid but not previously deducted this subtotal must further be reduced by any assets attributable to the postretirement medical plan remaining in the trust at the end of the plan_year wyatt offered no explanation as to why the associated administration_expenses were not included the lump-sum present values as of date of future retiree medical benefits for current pensioners and for current active employees not covered by a collectively bargained agreement were dollar_figure and dollar_figure respectively pursuant to the veba trust agreement the veba trust's assets including the date contribution additional contributions made during and the trust's investment earnings were used to pay the cost of providing welfare benefits under the plan to petitioner's employees and retirees as those benefits and costs arose during the veba trust's year the veba trust's balance on date was dollar_figure during the calendar_year the veba trust paid benefit claims plus related expenses in the amount of dollar_figure and medical and dental benefit claims under the plan for retirees in the amount of dollar_figure post-1987 facts and circumstances petitioner ceased prefunding the veba trust after the date contribution when sometime during date the veba trust assets were depleted after that time petitioner funded the veba trust as the benefit claims were incurred because petitioner was no longer prefunding the veba trust during date it changed its veba trust yearend from november back to a calendar yearend petitioner did not disclose in its financial reports that it funded a reserve for the provision of postretirement medical benefits the only reference to the veba trust in petitioner's financial reports was to the fact that petitioner received a deferred tax_benefit as a result of prefunding its group health insurance_trust during for retirees and disabled employees and during for active employees petitioner began disclosing to such employees the existence of the veba trust no disclosure was ever made to retirees employees or collective bargaining units for example petitioner's annual report indicates that dollar_figure of federal income taxes percent of petitioner's dollar_figure million contribution was deferred by prefunding the company's group health insurance_trust and the deferral of the tax effect of prefunding in in the amount of dollar_figure was reversed representing its employees that petitioner prefunded a reserve within the veba trust to accumulate assets for prmb's for employees petitioner engaged the accounting firm of touche ross co touche ross to audit4 the veba trust's financial statements as of date and date petitioner informed touche ross of the liabilities of the veba trust although petitioner did disclose to touche ross that there existed liabilities for unrevealed claims for medical dental short- and long-term disabilities and associated administrative costs petitioner did not disclose any liabilities of the veba trust for prmb's and did not disclose that any portion of the contributions made was for the purpose of funding a reserve consequently the veba trust's financial statements disclose neither a reserve nor a liability for a reserve for prmb's financial_accounting standards board fasb statement no entitled disclosure of post retirement health care and life_insurance benefits fasb was in effect during petitioner's year fasb section dollar_figure provides that employers at a minimum must disclose a description of the benefits provided and the employee groups covered a description of the accounting and funding policies followed for those benefits and touche ross's audit was limited and it did not express an opinion as to certain elements of the financial statements those areas are not relevant to the instant case the cost of those benefits recognized in the period fasb offers examples of appropriate disclosure statements when benefits are annually funded based on estimated accruals a proper disclosure could state the estimated cost of such benefits is accrued over the working lives of those employees expected to qualify for such benefits as a level percentage of their payroll costs alternatively when benefit costs are expensed as paid a proper disclosure could state the cost of retiree health care and life_insurance benefits is recognized as an expense as claims are paid petitioner's disclosure for retiree health and life_insurance benefits for its year stated the cost of retiree health coverage is recognized as an expense when claims are paid the cost of life_insurance benefits is recognized as an expense as premiums are paid the parties have stipulated that the addition to the account limit for incurred but unpaid claims for the veba trust's year ended date if based on the safe_harbor limits of sec_419a is dollar_figure plus dollar_figure of related administrative costs and if not based on the safe_harbor limits is dollar_figure plus dollar_figure of related administrative costs discussion summary_judgment may be granted if the pleadings and other materials demonstrate that no genuine issue exists as to any of the material facts and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 102_tc_380 in the instant case each party has moved for partial summary_judgment neither party argues that there is any material issue of fact remaining if we decide the three issues in the manner in which we do legal framework in sec_419 and sec_419a enacted as part of the deficit_reduction_act_of_1984 defra publaw_98_369 98_stat_494 congress limited the deductibility of contributions to welfare_benefit funds wbf's in order to restrict an employer from taking a current deduction for welfare benefits to be provided in the future sec_419 provides in relevant part the following sec_419 treatment of funded_welfare_benefit_plans a general_rule --contributions paid_or_accrued by an employer to a welfare_benefit fund-- shall not be deductible under this chapter but if they would otherwise be deductible shall subject_to the limitation of subsection b be deductible under this section for the taxable_year in which paid b limitation --the amount of the deduction allowable under subsection a for any taxable_year shall not exceed the welfare_benefit fund's qualified_cost for the taxable_year c qualified_cost --for purposes of this section-- in general --except as otherwise provided in this subsection the term qualified_cost means with respect to any taxable_year the sum of-- a the qualified_direct_cost for such taxable_year and b subject_to the limitation of sec_419a any addition to a qualified_asset_account for the taxable_year reduction for funds after-tax_income --in the case of any welfare_benefit_fund the qualified_cost for any taxable_year shall be reduced by such fund's after-tax_income for such taxable_year qualified_direct_cost -- a in general --the term qualified_direct_cost means with respect to any taxable_year the aggregate amount including administrative expenses which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable_year if-- i such benefits were provided directly by the employer and ii the employer used the cash_receipts_and_disbursements_method of accounting b time when benefits provided --for purposes of subparagraph a a benefit shall be treated as provided when such benefit would be includible in the gross_income of the employee if provided directly by the employer or would be so includible but for any provision of this chapter excluding such benefit from gross_income d carryover of excess_contributions --if-- the amount of the contributions paid or deemed paid under this subsection by the employer during any taxable_year to a welfare_benefit_fund exceeds the limitation of subsection b such excess shall be treated as an amount_paid by the employer to such fund during the succeeding taxable_year sec_419 provides that an employer's deduction for contributions to a wbf including a veba during a taxable_year may not exceed the fund's qualified_cost for the taxable_year the qualified_cost is the sum of qualified_direct_cost qdc and any additions to a qualified_asset_account qaa subject_to the limitations of sec_419a less after-tax_income for the year sec_419 the qdc is the aggregate amount including administrative expenses which would have been allowable as a deduction to the employer with respect to the benefits provided during the tax_year if the employer had provided those benefits directly rather than through the funds and used the cash_receipts_and_disbursements_method of accounting sec_419 such benefits are deemed provided at the time they would have been includable in the gross_income of the employees if provided directly by the employer disregarding any provision which would otherwise exclude such benefits from gross_income sec_419 if a contribution exceeds the year's qualified_cost the excess is treated as a contribution by the employer to the fund during the succeeding taxable_year sec_419 pursuant to the foregoing framework a deduction is available only for contributions made during the taxable_year for benefits actually provided during the taxable_year with the exception of additions made to qaa's for cibu's and prmb's accordingly employers are prohibited from prefunding benefits expected to be provided in later years other than additions made to qaa's stated another way after the enactment of defra employers are no longer allowed to accelerate deductions into one taxable_year for employee welfare benefits to be provided in later taxable years except as provided in sec_419 and sec_419a sec_419a provides in relevant part sec_419a qualified_asset_account limitation on additions to account a general_rule --for purposes of this subpart and sec_512 the term qualified_asset_account means any account consisting of assets set_aside to provide for the payment of-- disability benefits medical benefits sub or severance_pay benefits or life_insurance benefits b limitation on additions to account --no addition to any qualified_asset_account may be taken into account under sec_419 to the extent such addition results in the amount in such account exceeding the account limit c account limit --for purposes of this section-- in general --except as otherwise provided in this subsection the account limit for any qualified_asset_account for any taxable_year is the amount reasonably and actuarially necessary to fund-- a claims incurred but unpaid as of the close of such taxable_year for benefits referred to in subsection a and b administrative costs with respect to such claims additional reserve for post-retirement medical and life_insurance benefits --the account limit for any taxable_year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis using assumptions that are reasonable in the aggregate as necessary for-- a post-retirement medical benefits to be provided to covered employees determined on the basis of current medical costs or b post-retirement life_insurance benefits to be provided to covered employees special limitation where no actuarial certification -- a in general --unless there is an actuarial certification of the account limit determined under this subsection for any taxable_year the account limit for such taxable_year shall not exceed the sum of the safe_harbor limits for such taxable_year b safe_harbor limits -- i short-term disability benefits --in the case of short-term disability benefits the safe_harbor limit for any taxable_year is percent of the qualified direct costs other than insurance premiums for the immediately preceding_taxable_year with respect to such benefits ii medical benefits --in the case of medical benefits the safe_harbor limit for any taxable_year i sec_35 percent of the qualified direct costs other than insurance premiums for the immediately preceding_taxable_year with respect to medical benefits i regulations --the secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subpart such regulations may provide that the plan_administrator of any welfare_benefit_fund which is part of a plan to which more than employer contributes shall submit such information to the employers contributing to the fund as may be necessary to enable the employers to comply with the provisions of this section a fund's qaa consists of any assets set_aside to provide for the payment of disability benefits medical benefits supplemental_unemployment_compensation_benefits sub or severance_pay benefits or life_insurance benefits sec_419a no addition to a qaa which causes the account balance to exceed the account limit may be considered as a portion of the qualified_cost under sec_419 sec_419a the account limit for any taxable_year consists of two separate elements each of which is in issue in the instant case the first element of the account limit is the amount reasonably and actuarially necessary to fund cibu's as of the close of the taxable_year as well as administrative costs related to such claims sec_419a in the event that the cibu's are not actuarially determined the deduction can be no greater than certain safe_harbor percentages sec_419a the second element of the account limit is a reserve funded over the working lives of covered employees and actuarially determined on a level basis using assumptions that are reasonable in the aggregate as necessary for prmb's to be provided to covered employees determined on the basis of current medical costs or postretirement life_insurance benefits to be provided to covered employees sec_419a in the event that a taxpayer did not fund a reserve for cibu's or postretirement medical or life_insurance benefits the account limit for that taxable_year would be zero any amount left in the veba trust at yearend in such a case would cause a reduction in the deduction equal to that remaining balance because that amount would not qualify as qdc for although the requirement that the contribution be made during the taxable is satisfied such remaining funds were not used to provide welfare benefits during the taxable_year sec_419 issues the parties disagree as to whether petitioner is automatically ie without having to show reasonableness entitled to use the safe_harbor limits of sec_419a and ii discussed infra in computing the addition to the qaa for medical dental and short-term disability benefit cibu's and associated administrative costs the parties also disagree as to whether petitioner's dollar_figure million contribution or a part of that contribution to its veba trust during funded a reserve over the working lives of the covered employees for the provision of prmb's finally petitioner challenges the validity of sec_1_419-1t q a- b temporary income_tax regs fed reg date on the ground that it contradicts the plain language of sec_419 a claims incurred but unpaid sec_419a provides that without an actuarial certification with respect to an account limit determined under sec_419a the account limit may not exceed certain safe_harbor limits for the taxable_year in the case of short-term disability benefits the safe_harbor limit for any taxable_year is percent of the qdc other than insurance premiums for the immediately preceding_taxable_year with respect to such benefits sec_419a in the case of medical benefits the safe_harbor limit for any taxable_year i sec_35 percent of the qdc other than insurance premiums incurred for such benefits in the prior taxable_year sec_419a the safe_harbor limits are not automatic safe harbors because a taxpayer will not be entitled to use such limits unless they are reasonable as required by sec_419a 103_tc_216 if a taxpayer obtains an actuarial certification however it is not limited to the safe harbors petitioner contends that there is no reasonableness requirement in sec_419a and therefore it is entitled to use the safe_harbor limits based on those limits the additions to the account limit attributable to medical dental and short-term disability cibu's are dollar_figure plus dollar_figure of related administrative costs for the veba trust year ended date and dollar_figure plus dollar_figure of related administrative costs for the veba trust year ended date the parties have stipulated that the additions to the account limit for cibu's if not based on the safe_harbor limits are dollar_figure plus dollar_figure of related administrative costs and dollar_figure plus dollar_figure of related administrative costs for the veba trust years ended date and respectively petitioner contends that the phrase in sec_419a except as otherwise provided in this subsection means that any other provision ie sec_419a is outside of and not subject_to the general requirement of sec_419a accordingly petitioner contends that because sec_419a does not require that the account limit be reasonable no such requirement exists petitioner also argues that the safe_harbor limits allow taxpayers to avoid the burden of demonstrating that additions to the account limit are reasonable because the only way to show reasonableness would be to obtain an actuarial certification we disagree with petitioner although congress sought to reduce the cost of compliance by allowing certain additions to the account limit to be made without having to incur the cost of obtaining actuarial certification a taxpayer must still show that the additions to the account limit for cibu's during the tax_year are reasonable in general signal corp subs v commissioner supra we found that the taxpayer's calculations were not reasonable where the estimates were not made as of the fund's yearend the computations did not apportion administrative costs between insurance premiums and other qualified direct costs and the calculations were made using direct costs from the wrong years if there were no reasonableness standard taxpayers would automatically be entitled to the safe_harbor limits the legislative_history however states that even if the safe harbors are satisfied the taxpayer is to show that the reserves as allowed under the general standards provided by the bill eg claims incurred by unpaid are reasonable general signal corp subs v commissioner supra pincite quoting h conf rept pincite 1984_3_cb_1 in general signal we addressed and rejected much of the argument petitioner makes in the instant case petitioner neither cites nor addresses the analysis provided in general signal our reasoning in general signal is supported by the legislative_history and because petitioner has neither argued that the additions to the account limit based on the safe harbors are reasonable nor offered a compelling argument to abandon the general signal reasoning in the instant case we will not do so consequently we grant respondent's motion for partial summary_judgment with regard to the cibu's and deny petitioner's motion for partial summary_judgment with regard thereto in so doing we conclude that petitioner is entitled to an increase in the account limit attributable to medical dental and short-term disability cibu's in the amounts of dollar_figure plus dollar_figure of related administrative costs and dollar_figure plus dollar_figure of related administrative costs for the veba trust years ended and respectively b reserve for postretirement medical benefits petitioner argues that the phrase reserve funded over the working lives of the covered employees in sec_419a describes a method of measuring a liability to provide prmb's and does not require a separate accumulation of assets the issue of whether an actual reserve must be created has been addressed by this court in general signal corp subs v commissioner supra and parker-hannifin corp v commissioner tcmemo_1996_337 in those cases we held that the phrase reserve funded over the working lives of covered employees requires an accumulation of assets equal to the deduction taken and that those assets must be used to pay retiree welfare_benefit expenses in general signal we stated that the plain language of sec_419a suggests that congress intended to allow the accumulation of funds over the working lives of employees for the purpose of providing postretirement benefits this interpretation is supported by repeated references in the legislative_history to the accumulation of reserves for purposes of funding postretirement benefits and by the reference to revenue rulings which dealt with reserves used to accumulate funds for postretirement benefits additionally the legislative_history also establishes that congress intended to prevent employers from taking premature deductions for expenses which have not yet been incurred general signal corp subs v commissioner supra pincite emphasis added in both general signal and parker-hannifin corp we found that no reserve had been created obviating the need to consider whether the contributions were excessive from an actuarial standpoint in general signal we stated that the phrase reserve funded on its face suggests that congress intended this provision to allow the accumulation of funds by a welfare_benefit_fund for the purpose of providing postretirement benefits general signal corp subs v commissioner t c pincite where a statute is ambiguous we may look to its legislative_history and to the reason for its enactment 310_us_534 88_tc_177 affd 865_f2d_750 6th cir in general signal in light of the taxpayer's assertions that the phrase reserve funded does not have a commonly understood meaning we assumed arguendo that the phrase was ambiguous and considered the legislative_history general signal corp subs v commissioner supra pincite the relevant portion of the committee report states prefunding of life_insurance death_benefits or medical benefits for retirees --the qualified_asset_account limits allow amounts reasonably necessary to accumulate reserves under a welfare_benefit_plan so that the medical_benefit or life_insurance including death_benefit payable to a retired employee during retirement is fully funded upon retirement the conferees intend that the treasury_department prescribe rules requiring that the funding of retiree benefits be based on reasonable and consistently applied actuarial cost methods h conf rept pincite 1984_3_cb_1 emphasis added in general signal we concluded that congress' intent was to allow for the accumulation of assets to fund certain postretirement benefits in the instant case petitioner has offered no arguments beyond those made and rejected in general signal corp subs v commissioner supra and parker-hannifin corp v commissioner supra as to whether the language of sec_419a requires an accumulation of funds in order to create a reserve consequently we hold that such an accumulation of funds is necessary accordingly we next consider whether such an accumulation was made we consider all of the facts and circumstances in deciding whether a reserve funded over the working lives of covered employees for postretirement welfare benefits was created general signal corp subs v commissioner supra parker- hannifin corp v commissioner supra in general signal the taxpayer established its veba trust to prefund benefit payments it expected to incur in the calendar_year following the year during which the contribution was made for contributions to a veba made after date the employer's deduction was limited to the employer's qualified_direct_cost for the year plus any contributions to a qaa reasonably necessary to fund cibu's and or to provide a reserve for postretirement medical or life_insurance benefits sec_419 and sec_419a the taxpayer in general signal increased its veba contributions during by making additions to a qaa although it did not intend the veba trust to establish a reserve for postretirement benefits or accumulate assets for purposes of funding a reserve the taxpayer's additional qaa contributions during and totaled dollar_figure the veba trust's balance increased by only dollar_figure between date and date while its financial statements showed expenses for retiree liabilities of only dollar_figure accordingly of the dollar_figure contributed to fund a reserve at least dollar_figure dollar_figure less dollar_figure and dollar_figure was used to pay active employee welfare benefits during and additionally the taxpayer made no disclosures on its financial reports of the establishment or maintenance of reserves for postretirement medical or life_insurance benefits nor did it make any disclosure to its employees or their unions of the establishment or maintenance of such reserves finally the taxpayer's form_1024 containing projected yearend balances for through did not show reserves established for any purpose on the basis of all of the facts and circumstances we concluded that the veba trust did not accumulate assets for the purpose of funding a reserve for postretirement medical and life_insurance benefits in parker-hannifin corp v commissioner supra the taxpayer argued that during its tax_year it contributed dollar_figure for postretirement employee welfare benefits the taxpayer neither disclosed any assets set_aside for postretirement welfare benefits in its financial statements nor informed its employees of the existence or maintenance of such assets an internal document indicated that the contribution was expected to be depleted by benefit payments over the to months following the creation of the veba trust and in fact the contribution was depleted by the second month of the taxpayer's year during its year petitioner made no contributions to the veba trust and in the following years only monthly contributions which approximated the monthly welfare benefits paid were made to the trust the ending balance in the veba trust for each of the years and was zero the taxpayer's form_1024 application_for recognition of exemption did not disclose the existence of a reserve although such a disclosure was not required by the code or the regulations the taxpayer's lack of disclosure together with other evidence indicated that reserves did not exist we concluded that the taxpayer did not accumulate assets in the veba trust for the purposes of establishing a reserve for the payment of retiree welfare benefits in the instant case respondent's position simply stated is that considering all of the evidence petitioner did not create a reserve the veba trust was created by petitioner during one of its purposes was to accelerate the company's deduction for cibu's during petitioner recognized that statutory amendments made by defra which did not become effective until date would tighten the limitations governing the deduction of contributions to veba trusts an internal memorandum dated date indicates that petitioner believed that prefunding the veba trust would allow an acceleration of dollar_figure of expenses into producing assuming continued contributions to the trust a permanent deferral of taxes the memorandum also notes that if tax reform legislation produced a corporate tax decrease prefunding would produce additional tax benefits petitioner funded the veba trust with contributions totaling dollar_figure during date that contribution was the only contribution made to the veba trust during its year ending date the veba trust's beginning balance on date of dollar_figure its investment_income of dollar_figure and the december contributions were used to pay medical dental accident sickness and long-term disability benefits under the plan as they were incurred during the year leaving a yearend balance of dollar_figure on date as discussed infra sec_1_419-1t q a-5 b temporary income_tax regs fed reg date effectively denies the prefunding of claims by using differing taxable_year ends in an internal memorandum dated date petitioner recognized that that regulation could close the loophole created by the statute's ambiguity during petitioner increased its sec_419a account limit by allegedly creating a reserve for prmb's under sec_419a wyatt petitioner's actuary calculated that the present_value of petitioner's prmb's as of date for retirees was dollar_figure and for current active employees was dollar_figure the deductible portion of which was dollar_figure accordingly in wyatt's view the total deductible cost of prmb's for petitioner's tax_year ending date was dollar_figure the associated administrative expenses were dollar_figure which is percent of the deductible prmb's and when they are added to the cost of the prmb's the total is dollar_figure on date petitioner contributed dollar_figure million to the veba trust that contribution was the only one made to the veba trust during the calendar_year the balance of the veba trust on date was dollar_figure during the plan_year the veba trust paid benefit claims including related expenses of dollar_figure during the plan_year only dollar_figure was paid_by the veba trust for benefit claims of retirees the veba trust's balance on date was dollar_figure wyatt calculated that the present_value of petitioner's prmb's as of date for retirees was dollar_figure and for current active employees was dollar_figure the deductible portion of which was dollar_figure for a total deductible reserve contribution of dollar_figure on date petitioner made a dollar_figure contribution to the veba trust during the plan_year the date contribution additional contributions made during and the veba trust investment_income were used to pay the cost of providing medical dental accident sickness and long-term disability benefits and administrative costs under the plan to petitioner's employees and retirees as those benefits and costs came due during the veba trust's year during the calendar_year only dollar_figure was actually paid_by the veba trust under the plan for prmb's the veba trust's balance on date was dollar_figure if there had been an accumulation of assets the balance would have reflected the reserve contributions for and less any amounts actually paid for prmb's during and the deductible contribution amount the amount actuarially determined as necessary to create a reserve for prmb's was dollar_figure during the plan_year dollar_figure was paid_by the veba trust for prmb's accordingly the beginning balance for the plan_year should have been if properly funded dollar_figure dollar_figure less dollar_figure the yearend balance on date was in fact only dollar_figure the deductible contribution amount for the plan_year was dollar_figure during the year dollar_figure was paid for prmb's accordingly the increase in the required reserve at the plan yearend is dollar_figure dollar_figure less dollar_figure consequently the total reserve balance should be dollar_figure at the yearend dollar_figure plus dollar_figure the date yearend balance of the veba trust however was dollar_figure which supports a conclusion that in fact no reserve was funded petitioner claims that it continued to fund the reserve for prmb's during petitioner however ceased funding the veba trust for prmb's after the date contribution and sometime during date the veba trust's assets were depleted if petitioner had funded a reserve for the provision of prmb's it would not have depleted the veba trust by date what apparently caused that depletion was that all of the assets of the veba trust were used to pay welfare_benefit claims incurred which is inconsistent with funding a reserve although petitioner did make reference to an insurance_trust on its financial statements it gave no notice to shareholders this figure represents only the deductible contribution amount for employees not covered by collectively bargained agreements employees retirees or disabled employees of the existence of a reserve within the veba trust for the accumulation of assets ie the creation of a reserve for the provision of postretirement medical benefits this circumstance also supports the conclusion that petitioner did not fund or create a reserve petitioner engaged the services of touche ross to audit its veba trust financial statements but it did not disclose to touche ross the existence of a reserve or liabilities for the provision of prmb's petitioner however did disclose its reserve for cibu's and it was reported on the veba trust's financial statements although fasb requires disclosure of the funding policies followed for providing benefits and sets out an example of how a company could disclose the fact that it funded benefits on the basis of an accrual over the working lives of the covered employees the funding method for the cost of retiree health coverage that petitioner actually disclosed was that claims would be expensed as they were incurred this circumstance is additional support for the conclusion that petitioner did not fund a reserve for the provision of prmb's in an attempt to distinguish 103_tc_216 and parker-hannifin corp v commissioner tcmemo_1996_337 from the instant case petitioner points out that it established the veba trust in and used it at all times thereafter to pay employee welfare benefits whereas petitioner asserts that in general signal and parker-hannifin corp the veba's were short-lived tools utilized primarily as a mechanism for accelerating expenses prior to the corporate tax_rate reduction although it may be true that petitioner's veba trust has been used to provide employee welfare benefits since our inquiry is not whether the veba trust was used improperly for tax_avoidance purposes rather the question is whether petitioner created a reserve for prmb's funded over the working lives of its covered employees such reserves were not provided for by the code for tax years ending prior to date petitioner increased its account limit for a reserve contribution in and but then ceased such funding because we must decide whether a reserve was in fact created it is irrelevant how long petitioner utilized a veba trust or that it still has its veba trust for the foregoing reasons we hold that no reserve was created c sec_1_419-1t q a-5 b temporary income_tax regs the parties on brief agree that under sec_419 a contribution to a veba trust is not deductible unless it satisfies the following two conditions among others first the contribution is deductible only to the extent it is paid to the fund during the taxable_year sec_419 the parties agree that dollar_figure was paid or deemed paid to the fund during second the amount of the deduction shall not exceed the fund's qualified_cost for the fund's taxable_year sec_419 sec_1_419-1t q a-4 temporary income_tax regs fed reg date as discussed supra the qualified_cost is the qualified_direct_cost dollar_figure plus any additions to a qaa dollar_figure less the fund's after-tax_income for the year dollar_figure which in the instant case yields dollar_figure sec_419 the third limitation contained in sec_1_419-1t q a-5 b temporary income_tax regs fed reg date causes contributions made after the close of a fund's taxable_year but during the taxpayer's taxable_year to be included in the fund's yearend balance the dispute of the parties is whether the regulation is valid mechanics of the regulation sec_1_419-1t q a-5 b temporary income_tax regs supra provides b pursuant to sec_419a notwithstanding sec_419 and sec_1_419-1t contributions to a welfare_benefit_fund during any taxable_year of the employer beginning after date shall not be deductible for such taxable_year to the extent that such contributions result in the total amount in the this amount comprises the date contribution of dollar_figure million and the dollar_figure disallowed in and deemed to have been contributed on date the dollar_figure addition to the qaa comprises cibu's of dollar_figure associated administrative costs of dollar_figure and an increase pursuant to sec_419a of dollar_figure fund as of the end of the last taxable_year of the fund ending with or within such taxable_year of the employer exceeding the account limit applicable to such taxable_year of the fund as adjusted under sec_419a solely for purposes of this subparagraph i contributions paid to a welfare_benefit_fund during the taxable_year of the employer but after the end of the last taxable_year of the fund that relates to such taxable_year of the employer and ii contributions accrued with respect to a welfare_benefit_fund during the taxable_year of the employer or during any prior taxable_year of the employer but not actually paid to such fund on or before the end of a taxable_year of the employer and deducted by the employer for such or any prior taxable_year of the employer shall be treated as an amount in the fund as of the end of the last taxable_year of the fund that relates to the taxable_year of the employer contributions that are not deductible under this subparagraph are in excess of the qualified_cost of the welfare_benefit_fund for the taxable_year of the fund that relates to the taxable_year of the employer and thus are treated as contributed to the fund on the first day of the employer's next taxable_year the first sentence of the foregoing regulation reiterates the rule established by sec_419 and sec_419a and general signal corp subs v commissioner supra providing that contributions to a wbf which cause the amount in the veba trust to be greater than the account limit during a tax_year will cause a reduction in the deductible amount of any contribution made during the year the second sentence eliminates the tax_benefit to be obtained by having the taxable_year of a wbf end prior to the taxable yearend of a taxpayer that sentence causes any contribution or portion thereof made to a wbf after the fund's yearend but prior to the taxpayer's yearend intrayearend contributions to be treated as an amount in the wbf as of the end of the wbf's taxable_year in the instant case the second sentence of the regulation would prevent petitioner's deduction on the basis of the following calculation the fund balance on date was dollar_figure petitioner contributed dollar_figure million to the veba trust during date which under the regulation is deemed part of the date yearend balance equal to dollar_figure as was mentioned supra any balance remaining in the veba trust which is greater than the qaa account limit is not allowed as a deduction sec_419a the deemed yearend balance on date dollar_figure less the qaa account limit dollar_figure equals the amount of the actual contribution which is not allowable dollar_figure as a current deduction because the disallowed amount dollar_figure is greater than the actual contribution for the year dollar_figure million there is no amount of the contribution which is allowable as a current deduction consequently the deductible amount for pursuant to sec_1_419-1t q a-5 b temporary income_tax regs supra is zero petitioner contends that the limitation in the regulation is not supported by sec_419 and sec_419a and therefore is an see also sec_1_419-1t q a-4 temporary income_tax regs fed reg date which similarly defines the taxable_year where the employer and the fund have a different yearend impermissible broadening of the statute petitioner changed the tax_year of the veba trust from a calendar yearend to a fiscal_year ending november during november of changing the yearend of the veba trust was an attempt to avoid the limit on additions to a qualified_asset_account as imposed by sec_419a by making a full contribution during december for the next year's claims petitioner sought to take a deduction for the year of the contribution while treating the contribution as being made in the following year of the veba trust and avoiding the account limit imposed by sec_419 and sec_419a petitioner argues that but for the regulation its intrayearend contribution made during date would be deductible in because that contribution would not be required to be included as part of the veba as of its taxable_year ending date accordingly petitioner argues the regulation contradicts the plain language of sec_419 and is invalid petitioner contends that it is therefore entitled to a deduction for the contribution without application of the limitation review of the regulation in general signal corp subs v commissioner supra where the facts were virtually identical to the facts in this case the taxpayer did not argue that sec_1_419-1t q a- b temporary income_tax regs supra was invalid so we left that question for another day id pincite accordingly we are now called upon to answer the question of the validity of the regulation generally temporary regulations are accorded the same weight as final regulations 106_tc_31 peterson marital trust v commission102_tc_790 affd 78_f3d_795 2d cir sec_419a provides that the regulations shall be promulgated by the secretary as may be necessary to carry out the purposes of sec_419 and sec_419a if the intent of congress on a matter is clear then the secretary must give effect to the unambiguously expressed intent of congress 467_us_837 if however the statute is silent or ambiguous with respect to the specific issue a court must let stand any permissible construction of the statute by the agency unless the construction is arbitrary capricious or manifestly contrary to the statute id pincite if the administrator's regulation fills a gap or defines a term in a way that is reasonable in light of congressional intent the regulation should be given controlling weight 513_us_251 chevron u s a inc v natural_resources defense council inc supra at based on our analysis infra we find it unnecessary to decide whether the regulations are interpretive or legislative 40_f3d_224 7th cir revg tcmemo_1991_368 legislative intent sec_419 and sec_419 were enacted as part of defra which made these sections effective for contributions paid_or_accrued after date in taxable years ending after date speaking to the special grant of regulatory authority in sec_419 with respect to the definition of fund the conference committee report states in prescribing regulations relating to the definition of the term fund the conferees wish to emphasize that the principal purpose of this provision of the bill is to prevent employers from taking premature deductions for expenses which have not yet been incurred by interposing an intermediary organization which holds assets which are used to provide benefits to the employees of the employer h conf rept pincite 1984_3_cb_1 emphasis added although the foregoing portion of the legislative_history specifically deals with sec_419 it demonstrates that congress was primarily concerned with preventing employers from accelerating deductions prior to their being incurred general signal corp subs v commissioner t c pincite as stated above prior to the enactment of defra an employer_generally could deduct a contribution to a wbf in the year it was made or accrued even though the corresponding benefits were not includable in the income of the recipient until a later year h conf rept supra pincite c b vol pincite see also moser v commissioner tcmemo_1989_142 allowing a deduction for a single contribution to a veba which funded all of the welfare benefits the veba was expected to pay affd on other grounds 914_f2d_1040 8th cir both sec_419 and sec_419a in their attempt to end the acceleration of deductions for contributions to veba's refer to the taxable_year or taxable yearend these sections by their terms do not deal specifically with a situation where the trust and the employer use different taxable years creating a gap in the statutes the regulation fills the gap by treating contributions to a veba after the veba yearend but prior to the taxpayer's yearend as being in the fund at the time of the veba yearenddollar_figure because the regulation is consistent with the intent of defra and because it permissibly fills a gap created by sec_419 and sec_419a we conclude that sec_1_419-1t q a-5 b temporary income_tax regs fed reg date is not impermissibly broader than sec_419 and sec_419a and accordingly we hold that it is valid chevron u s a inc v natural_resources defense council inc supra we have respondent also argues that the deduction limited by the regulation would not otherwise be allowable as required by sec_419 ie under sec_162 sec_446 sec_461 and sec_7852 and that therefore the regulation is valid because we hold that the regulation is valid on other grounds we do not address this argument considered the remaining arguments of the parties and find them either without merit or unnecessary to reach to reflect the foregoing an appropriate order will be issued