Rev. Rul. 63-123

Advice has been requested regarding the deductibility of employee contributions to the trust fund established under the supplemental unemployment benefit plan described in Revenue Ruling 56-102, C.B. 1956-1, 90, after an amendment to the plan to provide for the payment of so-called `short-work week' and `waiting week' benefits.

Revenue Ruling 56-102 holds that employer contributions to an independently controlled trust fund, created solely for the purpose of furnishing supplemental unemployment benefits to certain employees, constitute ordinary and necessary business expenses which are deductible from gross income, under section 162(a) of the Internal Revenue Code of 1954, in the taxable year in which paid or incurred.

The supplemental unemployment benefit plan described in Revenue Ruling 56-102 has been amended to provide for the payment of socalled `short-work week' and `waiting week' benefits out of the benefit fund.

`Short-work week' benefits are payable to employees with more than one year's seniority whose weekly house of work or hours compensated by the employer total less than 40 hours and who are ineligible to receive state system unemployment benefits because they have been employed during the period, although not on a full-time basis. The amount of benefits is fixed as a percentage of the employee's regular straight-time hourly wage, times the number of hours less than 40 which the employee worked or for which he was compensated.

`Waiting week' benefits are computed in a similar manner and are payable to employees required to serve a `waiting week' period under a state unemployment benefit system pending eligibility for benefits.

Each of the described amendments merely acts to increase or extend employee benefits by increasing the number of circumstances under which payments may be made from the benefit fund. They do not alter the nature of the plan or the fund in any material respect.

Accordingly, it is held that employer contributions to the trust fund under the amended plan are ordinary and necessary business expenses which are deductible from gross income, under section 162(a) of the Code, in the taxable year when paid or incurred.

Revenue Ruling 56-102, C.B. 1956-1, 90, is hereby supplemented to provide for the continued deductibility of the employer contributions made under the amended supplemental unemployment benefit plan.