The Unimportance of Being a VEBA: Tax Attributes of Nonexempt Welfare Benefit Trusts
25 Pages Posted: 19 Aug 2011
Date Written: May 1, 1993
The proper tax treatment of a fully taxable welfare benefit trust – as opposed to the more common tax-exempt voluntary employees' beneficiary association ("VEBA") – is unsettled. This article explores the theories under which such a trust might be taxed, and demonstrates that if the ordinary trust tax rules apply, the presumed advantages of tax-exempt status as a VEBA may in many cases, surprisingly, be nonexistent. The article evaluates the arguments for and against taxation of a nonexempt welfare benefit trust as an ordinary trust, and concludes that the stronger arguments appear to support this (as opposed to taxation as a grantor trust or insurance company, for example) as the appropriate taxation theory.
Keywords: VEBA, employee benefits, health insurance, voluntary employees' beneficiary association, grantor trust, trust taxation, welfare benefits, 419, 419A
JEL Classification: K34
Suggested Citation: Suggested Citation