[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.501(c)(17)-3]

[Page 35-36]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.501(c)(17)-3  Relation to other sections of the Code.

    (a) Taxability of benefit distributions--(1) Separation benefits. If 
the separation benefits described in section 501(c)(17)(D)(i) are funded 
entirely by employer contributions, then the full amount of any 
separation benefit payment received by an employee is includible in his 
gross income under section 61(a). If any such separation benefit is 
funded by both employer and employee contributions, or solely by 
employee contributions, the amount of any separation benefit payment 
which is includible in the gross income of the

[[Page 36]]

employee is the amount by which such distribution and any prior 
distributions of such separation payments exceeds the employee's total 
contributions to fund such separation benefits.
    (2) Sick and accident benefits. Any benefit payment received from 
the trust under the part of the plan, if any, which provides for the 
payment of sick and accident benefits must be included in gross income 
under section 61(a), unless specifically excluded under section 104 or 
105 and the regulations thereunder. See section 105(b) and Sec. 1.105-2 
for benefit payments expended for medical care, benefit payments in 
excess of actual medical expenses, and benefit payments which an 
employee is entitled to receive irrespective of whether or not he incurs 
expenses for medical care. See section 213 and Sec. 1.213-1(g) for 
benefit payments representing reimbursement for medical expenses paid in 
prior years. See Sec. 1.501(c)(17)-2(i) for the requirement that a 
trust described in section 501(c)(17) which receives employee 
contributions must be part of a written plan which provides for the 
allocation of the cost of funding sick and accident benefits.
    (b) Exemption as a voluntary employees' beneficiary association. 
Section 501(c)(17)(E) contemplates that a trust forming part of a plan 
providing for the payment of supplemental unemployment compensation 
benefits may, if it qualifies, apply for exemption from income tax under 
section 501(a) either as a voluntary employees' beneficiary association 
described in section 501(c)(9) or as a trust described in section 
501(c)(17).
    (c) Returns. A trust which is described in section 501(c)(17) and 
which is exempt from tax under section 501(a) must file a return in 
accordance with section 6033 and the regulations thereunder. If such a 
trust realizes any unrelated business taxable income, as defined in 
section 512, the trust is also required to file a return with respect to 
such income.
    (d) Effective date. Section 501(c)(17) shall apply to taxable years 
beginning after December 31, 1959, and shall apply to supplemental 
unemployment benefit trusts regardless of when created or organized.

[T.D. 6972, 33 FR 12902, Sept. 12, 1968]