Code section 419A

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Code Section 419A controls the deductible contributions that may be made to qualified asset accounts.


419A(c)(2) permits a deduction for contributions to a “reserve funded over the working lives of the covered employees … for post-retirement medical benefits to be provided to covered employees.”

In several cases, the IRS has disallowed deductions under § 419A(c)(2) after “prefunding” contributions for retiree medical benefits were spent soon after being made. The IRS considers these “reserves” to be shams, and its position has been repeatedly upheld in court.


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