Reynolds American Medsave Plan

“Schedule d, part xi, line 2d and part xii, line 2d employer-matching contributions are not funded by the participant companies. However, a liability is maintained on each operating unit's general ledger for such contributions, plus earnings due to the veba trust. There is no requirement other than the provisions in the plan document for the participating companies to fund the employer contribution. Furthermore, there is no guarantee that the employer funds will be available at the time claims are submitted for payment. For the period ended december 31, 2015, ($172,783) in net other adjustments composed of $637,872 in net employer contributions and $465,089 in net employer distributions of benefits were included in the financial statements but not included on the tax return. The financial statement relates to the reynolds american medsave plan, which includes the reynolds american medsave veba trust reflected in this tax return.”

“FORM 990, SCHEDULE D, PART X, LN 2 The Internal Revenue Service has determined and informed the Company by a letter dated February 7, 1995, that the VEBA trust is tax-exempt under Section 501(c)(9) of the IRC. The Company and the Plan administrator believe the VEBA trust continues to qualify and operate in compliance with the applicable requirements of the IRC and the Plan and the related trust continue to be tax-exempt. Therefore, no provision for income taxes has been included in the plan's financial statements. Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the plan and recognize a tax liability (or asset) if the plan has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The plan administrator has analyzed the tax positions taken by the plan, and has concluded that as of December 31, 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2012.”