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 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 §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
§1.213-1(g) for benefit payments representing reimbursement
for medical expenses paid in prior years. See §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. [Reg. §1.501(c)(17)-3.]
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