Reynolds American Medsave Plan

“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, 2018, $209,613 in net other adjustment composed of $504,398 in net employer contributions and $714,011 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.”

“The veba trust funding certain benefits of the plan received an exemption letter from the internal revenue service (irs) dated february 7, 1995, stating that the trust is tax-exempt under the provisions of section 501(c)9 of the irc. However, as a result of the plan's funding policy, from time to time the trust may be subject to income taxes. No federal or state income taxes have been recorded in 2018 for unrelated business taxable income. In addition, the plan and the trust are required to operate in conformity with the irc to maintain the tax-exempt status of the trust. The plan administrator believes that the plan is being operated in compliance with the applicable requirements of the irc and, therefore, believes that the related trust is tax-exempt. 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 it has taken an uncertain position that more likely than not would not be sustained upon examination by the irs. The plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.”