[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.162-10]

[Page 781-782]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.162-10  Certain employee benefits.

    (a) In general. Amounts paid or accrued by a taxpayer on account of 
injuries received by employees and lump sum amounts paid or accrued as 
compensation for injuries, are proper deductions as ordinary and 
necessary expenses. Such deductions are limited to the amount not 
compensated for by insurance or otherwise. Amounts paid or accrued 
within the taxable year for dismissal wages, unemployment benefits, 
guaranteed annual wages, vacations, or a sickness, accident, 
hospitalization, medical expense, recreational, welfare, or similar 
benefit plan, are deductible under section 162(a) if they are ordinary 
and necessary expenses of the trade or business. However, except as 
provided in paragraph (b) of this section, such amounts shall not be 
deductible under section 162(a) if, under any circumstances, they may be 
used to provide benefits under a stock bonus, pension, annuity, profit-
sharing, or other deferred compensation plan of the type referred to in 
section 404(a). In such an event, the extent to which these amounts are 
deductible from gross income shall be governed by the

[[Page 782]]

provisions of section 404 and the regulations issued thereunder.
    (b) Certain negotiated plans. (1) Subject to the limitations set 
forth in subparagraphs (2) and (3) of this paragraph, contributions paid 
by an employer under a plan under which such contributions are held in a 
welfare trust for the purpose of paying (either from principal or income 
or both) for the benefit of employees, their families, and dependents, 
at least medical or hospital care, and pensions on retirement or death 
of employees, are deductible when paid as business expenses under 
section 162(a).
    (2) For the purpose of subparagraph (1) of this paragraph, the word 
``plan'' means any plan established prior to January 1, 1954, as a 
result of an agreement between employee representatives and the 
Government of the United States, during a period of Government 
operation, under seizure powers, of a major part of the productive 
facilities of the industry in which the employer claiming the deduction 
is engaged. The phrase ``plan established prior to January 1, 1954, as a 
result of an agreement'' is intended primarily to cover a trust 
established under the terms of such an agreement. It also includes a 
trust established under a plan of an employer, or group of employers, 
who, by reason of producing the same commodity, are in competition with 
the employers whose facilities were seized and who would therefore be 
expected to establish such a trust as a reasonable measure to maintain a 
sound position in the labor market producing the commodity. For example, 
if a trust was established under such an agreement in the bituminous 
coal industry, a similar trust established in the anthracite coal 
industry within a reasonable time, but before January 1, 1954, would 
qualify under subparagraph (1) of this paragraph.
    (3) If any trust described in subparagraph (2) of this paragraph 
becomes qualified for exemption from tax under the provisions of section 
501(a), the deductibility of contributions by an employer to such trust 
on or after any date of such qualification shall no longer be governed 
by the provisions of section 162, even though the trust may later lose 
its exemption from tax under section 501(a).
    (c) Other plans providing deferred compensation. For rules relating 
to the deduction of amounts paid to or under a stock bonus, pension, 
annuity, or profit-sharing plan or amounts paid or accrued under any 
other plan deferring the receipt of compensation, see section 404 and 
the regulations thereunder.