§419 — Treatment of funded welfare benefit plans
74 cases·11 followed·7 distinguished·2 questioned·12 criticized·3 overruled·39 cited—15% support
Statute Text — 26 U.S.C. §419
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.
The amount of the deduction allowable under subsection (a)(2) for any taxable year shall not exceed the welfare benefit fund’s qualified cost for the taxable year.
For purposes of this section—
Except as otherwise provided in this subsection, the term “qualified cost” means, with respect to any taxable year, the sum of—
the qualified direct cost for such taxable year, and
subject to the limitation of section 419A(b), any addition to a qualified asset account for the taxable year.
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.
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—
such benefits were provided directly by the employer, and
the employer used the cash receipts and disbursements method of accounting.
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).
In determining qualified direct costs with respect to any child care facility for purposes of subparagraph (A), in lieu of depreciation the adjusted basis of such facility shall be allowable as a deduction ratably over a period of 60 months beginning with the month in which the facility is placed in service.
The term “child care facility” means any tangible property which qualifies under regulations prescribed by the Secretary as a child care center primarily for children of employees of the employer; except that such term shall not include any property—
not of a character subject to depreciation; or
located outside the United States.
The term “after-tax income” means, with respect to any taxable year, the gross income of the welfare benefit fund reduced by the sum of—
the deductions allowed by this chapter which are directly connected with the production of such gross income, and
the tax imposed by this chapter on the fund for the taxable year.
In determining the gross income of any welfare benefit fund—
contributions and other amounts received from employees shall be taken into account, but
contributions from the employer shall not be taken into account.
No item may be taken into account more than once in determining the qualified cost of any welfare benefit fund.
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.
For purposes of this section—
The term “welfare benefit fund” means any fund—
which is part of a plan of an employer, and
through which the employer provides welfare benefits to employees or their beneficiaries.
The term “welfare benefit” means any benefit other than a benefit with respect to which—
section 83(h) applies,
section 404 applies (determined without regard to section 404(b)(2)), or
section 404A applies.
The term “fund” means—
any organization described in paragraph (7), (9), or (17) of section 501(c),
any trust, corporation, or other organization not exempt from the tax imposed by this chapter, and
to the extent provided in regulations, any account held for an employer by any person.
Notwithstanding paragraph (3)(C), the term “fund” shall not include amounts held by an insurance company pursuant to an insurance contract if—
such contract is a life insurance contract described in section 264(a)(1), or
such contract is a qualified nonguaranteed contract.
For purposes of this paragraph, the term “qualified nonguaranteed contract” means any insurance contract (including a reasonable premium stabilization reserve held thereunder) if—
there is no guarantee of a renewal of such contract, and
other than insurance protection, the only payments to which the employer or employees are entitled are experience rated refunds or policy dividends which are not guaranteed and which are determined by factors other than the amount of welfare benefits paid to (or on behalf of) the employees of the employer or their beneficiaries.
In the case of any qualified nonguaranteed contract, subparagraph (A) shall not apply unless the amount of any experience rated refund or policy dividend payable to an employer with respect to a policy year is treated by the employer as received or accrued in the taxable year in which the policy year ends.
If—
there is no plan, but
there is a method or arrangement of employer contributions or benefits which has the effect of a plan,
this section shall apply as if there were a plan.
If any fund would be a welfare benefit fund (as modified by subsection (f)) but for the fact that there is no employee-employer relationship—
this section shall apply as if there were such a relationship, and
any reference in this section to the employer shall be treated as a reference to the person for whom services are provided, and any reference in this section to an employee shall be treated as a reference to the person providing the services.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.419-1T Treatment of welfare benefit funds
- Treas. Reg. §Treas. Reg. §1.419-1T(b) §1.419-1T(b)
- Treas. Reg. §Treas. Reg. §1.419-1T(c) For purposes of calculating the “existing excess reserve amount” under Q&A-1 of § 1.
- Treas. Reg. §Treas. Reg. §1.419-1T(d) Notwithstanding paragraph (b), in determining the extent to which contributions paid or accrued with respect to a welfare benefit fund are deductible under section 419, the rules of sections 263, 446(b), and 461(a) will be treated as having been satisfied to the extent that such contributions satisfy the otherwise applicable rules of section 419.
- Treas. Reg. §Treas. Reg. §1.419-1T(e) In determining the extent to which contributions with respect to a welfare benefit fund satisfy the requirements of section 461(h) for any taxable year for which section 461(h) is effective, pursuant to the authority under section 461(h)(2), economic performance occurs as contributions to the welfare benefit fund are made.
74 Citing Cases
1181 which was sa supplemented and superseded by Notice 2004-67, 2004-2 C.B.
This 10-or-more-employerplan exception is found in section 419A(f)(6). The exception ofsection 419A(f)(6) does not apply to a plan which maintains experience-rating arrangements with respect to individual employers.
We therefore do not distinguish between contributions for Mogelefsky's benefit and contributions for his stepson's benefit . We find that no part of Mogelefsky's contributions to Benistar Plan is deductible . Cf . id. (holding that because the record was insufficient to establish the term life insurance component of the contribution, . no part of the contribution was deductible) . Our interpretation and application of section 162(a) does not undermine sections 419 and 419A, because our conclusio
Respondent asserts that Mercer’s methodology in computing Norwest’s 1991 contribution for medical benefits to retirees was improper and resulted in a - 18 - contribution that exceeded the account limit for a reserve under section 419A(c)(2).17 For the reasons set forth below, we disagree with respondent’s assertion.
We do not agree with petitioners that any ambiguity is to be resolved in their favor.
We disagree with petitioner.
We hold that the IRS did not abuse its discretion in denying interest abatement because Goldberg failed to prove the predicate conditions under which it may be abated.
We hold that Goyak & Associates may not deduct the payment, as it is not an ordinary and necessary business expense under section 162 (a) ; (2) whether the $1.4 million paid to the Millennium Plan is taxable to Mr.
'The issues for decision are, first, whether payments to the Benistar 419 Plan & Trust for employee benefits are ordinary and necessary business expenses under section 162(a), and if so, whether the payments are deductible contributions to a multiple- employer welfare benefit plan under section 419A(f)(6)(cid:127), and, second, whether petitioners are liable for accuracy-related penalties under section 6662 .
419A(d).) The result of the above calculations was $1,539,950. At this point, Dorn consulted with Harry A. Don (Don), an actuary with the Wyatt Company. During a telephone conversation, Don told Dorn that the use of a factor of 7 would be appropriate. Dorn multiplied $1,539,950 by 7 and arrived at $10,779,650, which was used in calculating the
it Instructions", which Mr. Fox signed on December 30, 1992, states: "Amount to be wired $85,000". These documents do not show that petitioners paid $100,000 in 1992 or at any time. We conclude that petitioners may not deduct $100,000 in 1992 under section 419. D. Whether Mr. and Mrs. Fox Had $2,237 in Unreported Interest Income Respondent determined and contends that Mr. and Mrs. Fox had $2,237 in unreported interest income from Oxyfresh in 1993. Neither party offered any evidence on this issue
it Instructions", which Mr. Fox signed on December 30, 1992, states: "Amount to be wired $85,000". These documents do not show that petitioners paid $100,000 in 1992 or at any time. We conclude that petitioners may not deduct $100,000 in 1992 under section 419. D. Whether Mr. and Mrs. Fox Had $2,237 in Unreported Interest Income Respondent determined and contends that Mr. and Mrs. Fox had $2,237 in unreported interest income from Oxyfresh in 1993. Neither party offered any evidence on this issue
g, and opinion solely with respect to the issue involved herein. - 2 - postretirement medical trust in 1991 and, on Ps’ consolidated return for 1991, claimed a deduction for the contribution as an addition to a “qualified asset account” pursuant to sec. 419A(b), I.R.C. R determined that Ps’ method for computing the 1991 contribution for postretirement benefits for retirees was improper and resulted in a contribution that exceeded the account limit for a reserve under sec. 419A(c)(2), I.R.C. R fu
g, and opinion solely with respect to the issue involved herein. - 2 - postretirement medical trust in 1991 and, on Ps’ consolidated return for 1991, claimed a deduction for the contribution as an addition to a “qualified asset account” pursuant to sec. 419A(b), I.R.C. R determined that Ps’ method for computing the 1991 contribution for postretirement benefits for retirees was improper and resulted in a contribution that exceeded the account limit for a reserve under sec. 419A(c)(2), I.R.C. R fu
g, and opinion solely with respect to the issue involved herein. - 2 - postretirement medical trust in 1991 and, on Ps’ consolidated return for 1991, claimed a deduction for the contribution as an addition to a “qualified asset account” pursuant to sec. 419A(b), I.R.C. R determined that Ps’ method for computing the 1991 contribution for postretirement benefits for retirees was improper and resulted in a contribution that exceeded the account limit for a reserve under sec. 419A(c)(2), I.R.C. R fu
1(a), 512(a), 98 Stat. 494, 854, 862, limit an employer's deductions for contributions made to a welfare benefits fund for employees. These limitations do not apply to a welfare benefits fund that is part of a "10 or more employer plan" described in sec. 419A(f)(6), I.R.C. Under the Prime Plan, in which Ps 1 Cases of the following petitioners are consolidated herewith: N.L. Booth & Son, Inc., docket No. 2545-94; John N. Booth & Debra Booth, docket No. 2546-94; Young & Young, Ltd., docket No. 575
1(a), 512(a), 98 Stat. 494, 854, 862, limit an employer's deductions for contributions made to a welfare benefits fund for employees. These limitations do not apply to a welfare benefits fund that is part of a "10 or more employer plan" described in sec. 419A(f)(6), I.R.C. Under the Prime Plan, in which Ps 1 Cases of the following petitioners are consolidated herewith: N.L. Booth & Son, Inc., docket No. 2545-94; John N. Booth & Debra Booth, docket No. 2546-94; Young & Young, Ltd., docket No. 575
1(a), 512(a), 98 Stat. 494, 854, 862, limit an employer's deductions for contributions made to a welfare benefits fund for employees. These limitations do not apply to a welfare benefits fund that is part of a "10 or more employer plan" described in sec. 419A(f)(6), I.R.C. Under the Prime Plan, in which Ps 1 Cases of the following petitioners are consolidated herewith: N.L. Booth & Son, Inc., docket No. 2545-94; John N. Booth & Debra Booth, docket No. 2546-94; Young & Young, Ltd., docket No. 575
The only remaining issues relate to a $1.4 million contribution Goyak & Associates paid in 2002 to the Millennium Multiple Employer Welfare Benefit Plan (Millennium Plan), a purported section 419A(f) (6) welfare benefit fund.
* * * In general, the rules applicable in computing the account limit under the deduction rules [section 419], such as the special reserve limits for collectively bargained plans, also are applicable in determining the set-aside allowed for purposes of the unrelated business income tax.
tributions to the Legacy Employee Welfare Benefit Trust (Trust).2 The S Corp. participated in the Legacy Plan by agreeing to the terms of a “master plan docu- ment,” which described the Legacy Plan as a “multiple employer welfare benefit plan” under section 419A(f)(6). To be eligible to receive benefits a person was re- quired to “provide[] services to an Employer.” Petitioners were “eligible employ- ees” under the Legacy Plan because they provided services to the S Corp. 2In December 2010 the L
in life insurance because he had health - 7 - [*7] problems that he assumed would make it difficult to purchase policies. He did not seek life insurance through any other sources. Petitioner did not do any research on deductibility ofpayments to a section 419 plan. He discussed it with Bunning and Ewing, and they discussed it between themselves. Petitioner and Ewing agreed that Ewing would be paid commissions as a life insurance salesman ifhe acquired the plan and would not be paid his regular f
e sec. 1366. A. The Legacy/Flex Plan In July 2004 Legacy Benefit Plans, LLC, an Illinois company (LBP), estab- lished the Legacy Employee Welfare Benefit Plan (Legacy Plan). The Legacy Plan was a purported multiple-employerwelfare benefit plan under section 419A(f)(6). At all relevant times LBP was the sponsor and administrator ofthe Legacy Plan. An employer elected to participate in the Legacy Plan by adopting a welfare benefit plan pursuant to the terms ofa master plan. The Legacy Plan offered
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
SIONER OF INTERNAL REVENUE, Respondent Docket No. 5403-08. Filed December 16, 2015. In 1998, P-H's wholly owned S corporation, H, became a participating employer in the A Plan, which purported to be a "10 or more employer" welfare benefit plan under I.R.C. sec. 419A(f)(6), providing death benefits to selected employees ofan employer participating in the plan. To fund the death benefits for covered employees, each participating employer made cash contributions to a trust associated with the A Pla
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
As necessary for clarity, we will refer to the first request as the summaryjudgment request and to the second request as the partial summary judgment request. - 4 - [*4] constitute a qualified welfare benefit fund or "10-or-more employerplan" under section 419A(f)(6). The plan was to provide Dr. LeCompte with a death benefit and a severance benefit. He was the only employee ofthe corporation covered by the plan. In order to fund its obligation to provide the stated benefits to Dr. LeCompte, the
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
The arrangements are sometimes referred to by persons advocating their use as "single employerplans" and sometimes as "419(e) plans." Those advocates claim that the employers' contributions to the trust are deductible under §§ 419 and 419A as qualified cost, but that there is not a corresponding inclusion in the owner's income.
419A(f)(5)." 23 This exception is based, in part, on the assumption that deductions for (continued...) -20- [*20] One might think that the sequence ofcontribution to deduction to purchase of life insurance to tax-free receipt ofloan proceeds would attractthe Commissioner's attention. It did. PBC claimed a deduction ofmore than $300,000 for it
419A(f)(5)." 23 This exception is based, in part, on the assumption that deductions for (continued...) -20- [*20] One might think that the sequence ofcontribution to deduction to purchase of life insurance to tax-free receipt ofloan proceeds would attractthe Commissioner's attention. It did. PBC claimed a deduction ofmore than $300,000 for it
Section 419A(f)(6), however, provides that contributions paid by an employer to a multiple-employerwelfare benefit fund are not subject to the deduction limitation ofsection 419(b). -41- Ordinary andNecessaryBusiness Expenses In general, section 162(a) provides that "There shall be allowed as a deduction all the ordinary and necessary expenses pai
Alexander told petitioners that they could make larger tax deductible contributions and reduce their tax liabilities by ùsing a section 419 welfare benefit plan (419 plan) and a defined benefit plan (collectively, plans).3 Mr.
The issues for decision are: (1) whetherpetitioners were required to include in income the value oftwo cash value insurance policies SERVED Nov 28 2012 [*2] on their lives that were held by a purported section 419A(f)(6) welfare benefit plan from which petitioners' employer withdrew; and (2) whetherpetitioners are liable for an accuracy-relatedpeËalty under section 6662.
Assets invested through the Benistar 419 Plan, paid for the benefit ofthe taxpayers, are includible in income A. The business referred to as LTC Staffing Services, LLC, made payments to the Benistar 419 Plan as summarized above. The taxpayers have not substantiated that the Benistar 419 Plan is a welfare benefit plan, or that it
The- corporation mahe yearly contributioris to AWBF onabehaJ f of petitioner and' hia -4- fellow covered, employees and deducted those payments under section 419A(f) (5) .
Section 419 generally limits deductions to the cost of providing current benefits, plus a very limited prefunding of benefits allowable under section 419A. But these limits do not apply to plans that comply with section 419A(f) (6). Thus, the allure of the Advantage 419 Trust was the ability to set money aside in a way that would allow its value to
Section 419 generally limits deductions to the cost of providing current benefits, plus a very limited prefunding of benefits allowable under section 419A. But these limits do not apply to plans that comply with section 419A(f)(6). Thus, the allure of the Advantage 419 Trust was the ability to set money aside in a way that would allow its value to
Benistar Plan was crafted by Daniel Carpenter to be a multiple-employer welfare benefit trust under'section 419A(f)(6) providing preretirement life insurance to covered' employees .
ose amounts to the Severance Trust Executive Program Multiple Employer Supplemental Benefit Plan and Trust (STEP), a plan that was promoted to wealthy professionals as a welfare benefits fund that was part of a 10- or-more-employer plan described in section 419A(f)(6) .2 STEP used the contributions to purchase and pay the premiums on six whole life insurance policies , five of which were each written with respect to one or both spouses of each couple (with the 2 Unless otherwise indicated, secti
ose amounts to the Severance Trust Executive Program Multiple Employer Supplemental Benefit Plan and Trust (STEP), a plan that was promoted to wealthy professionals as a welfare benefits fund that was part of a 10- or-more-employer plan described in section 419A(f)(6) .2 STEP used the contributions to purchase and pay the premiums on six whole life insurance policies, five of which were each written with respect to one or both spouses of each couple (with th e 2 Unless otherwise indicated, secti
Respondent determined as a second alternative that, assuming the Neonatology Plan is a “welfare benefit fund”, any deduction of the excess contributions was precluded by section 419; for this alternative, respondent determined that the SC VEBA was not a “10-or-more employer plan” under section 419A(f)(6) as asserted by petitioners.
Respondent determined as a second alternative that, assuming the Neonatology Plan is a “welfare benefit fund”, any deduction of the excess contributions was precluded by section 419; for this alternative, respondent determined that the SC VEBA was not a “10-or-more employer plan” under section 419A(f)(6) as asserted by petitioners.
Respondent determined as a second alternative that, assuming the Neonatology Plan is a “welfare benefit fund”, any deduction of the excess contributions was precluded by section 419; for this alternative, respondent determined that the sc VEBA was not a “10-or-more employer plan” under section 419A(f)(6) as asserted by petitioners.
419A.004(24) (1997). An example of the difficulties we have with respondent's approach is provided by respondent's citation of the foregoing statutes to support the assertion that a "group home" cannot be a "foster family home". Respondent fails to mention that Department of Health and Human Services regulations define "foster family home" to