Iba Group Insurance Trust

Part X, Line 2:

“The VEBA (Voluntary Employees Benefit Association) trust funding benefits of the Trust received an exemption letter from the Internal Revenue Service (IRS) dated May 20, 1974, stating that the trust is tax-exempt under the provisions of Section 501(c)9 of the Internal Revenue Code (IRC). However, as a result of the Trust's funding level, from time to time the trust may be subject to income taxes. For the years ended April 30, 2019 and 2018, the Trust was not subject to federal and state income taxes for unrelated business taxable income (UBTI). UBTI is generated as a result of VEBA trust assets which exceed the amount reasonably necessary to cover unpaid accrued claims and premiums to insurance carriers, resulting in the excess accumulations being subject to UBTI. The tax is assessed on the lesser of the VEBA's income or excess assets in the qualified asset account. For UBTI purposes, the VEBA's income is equal to investment earnings, less investment management fees associated with those earnings. In addition, the Trust and the VEBA trust are required to operate in conformity with the IRC to maintain the tax-exempt status of the trust. The Trust administrator believes that the Trust is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the related VEBA trust is tax-exempt. Accounting principles generally accepted in the United States of America require Trust management to evaluate tax positions taken by the Trust and recognize a tax liability (or asset) if the Trust has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Trust is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Trust requested a private letter ruling from the IRS on February 16, 2018 regarding the method for determining the qualified asset account limit. On July 16, 2018, the Trust received a response from the IRS indicating that the Trust may consider insurance premiums paid as qualified direct costs for purposes of determining the qualified asset account limit. As such, the Trust has filed amended tax filings for the years ended April 30, 2017 and 2016 in order to recoup the full amount of income taxes paid to federal and state taxing authorities. Such amounts have been recorded as income tax refunds receiveable on the statements of net assets available for benefits as of April 30, 2019 and 2018, and income tax refunds on the statement of changes in net assets available for benefits for the year ended April 30, 2018.”