Rev. Rul. 71-209

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 4011, C.B. 1950-1, 32.

The question presented is whether payments made by an employer under a private plan established pursuant to title 43, Chapter 21, of the Revised Statutes of New Jersey, as amended and supplemented, are deductible as an ordinary and necessary business expense for Federal income tax purposes.

M, a domestic corporation doing business in the State of New Jersey, established a private plan for the payment of nonoccupational disability benefits to its employees in lieu of the benefits of the State of New Jersey's plan for similar compensation.

The pertinent provisions of the New Jersey Revised Statutes reads as follows:

Section 43:21-32. Any covered employer may establish a private plan for the payment of disability benefits in lieu of the benefits of the State plan hereinafter established. Benefits under such a private plan may be provided by a contract of insurance issued by an insurer duly authorized and admitted to do business in this State, or by an agreement between the employer and a union or association representing his employees, or by a specific undertaking by the employer as a self-insurer. Subject to the insurance laws of this State, such a contract of insurance may be between the insurer and the employer; or may be between the insurer and two or more employers, acting for the purpose through a nominee, designee or trustee; or may be between the insurer and the union or association with which the employer has an agreement with respect thereto. Each such private plan shall be submitted in detail to the Division of Employment Security and shall be approved by the division . . . (Title 43, Subtitle 9, Chapter 21, Revised Statutes, 1937, as amended.)

Section 162(a) of the Internal Revenue Code of 1954 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

Accordingly, contributions made by M under the private plan established pursuant to title 43, chapter 21, of the Revised Statutes of New Jersey, as amended and supplemented, to provide for payment of nonoccupational disability benefits to employees are deductible as ordinary and necessary business expenses under section 162(a) of the Code.

I.T. 4011 is hereby superseded, since the position stated therein is restated under the current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.