ment of sections 419 and 419A, which stated that "An employer's contribution to a fund that is a part of a welfare benefit plan may be deductible in the year it is made rather than at the time the benefit is provided."" Schneider v. Commissioner, supra (quoting H. Conf. Rept. 98-861, at 1154 (1984), 1984-3 C.B. (Vol. 2) 408).

The discussion of sections 419 and 419A in Schneider v. Commissioner, supra, is not inconsistent with our holding in the instant case. Under the law applicable to pre-1986 years, there simply was no requirement that deductions for contributions to VEBA's be delayed until benefits were actually paid to the employees. Sections 419 and 419A imposed this requirement for contributions made after 1985. However, as we recognized in Schneider, there had always been a requirement that an expenditure be capitalized if the expenditure provided the taxpayer with substantial future benefits. In Schneider v. Commissioner, supra, we found that the expenditures in issue had not provided the taxpayer with substantial future benefits. In the instant case, we have found that petitioner's contribution to VEBA II did result in substantial future benefits. Our decision today, therefore, is consistent with Schneider v. Commissioner, supra, and the state of the law in 1985. As the Supreme Court explained in INDOPCO, Inc. v. Commissioner, 503 U.S. at 86-87, it was not articulating any new legal standard in holding that capitalization is required when expenditures provide the taxpayer with significant future benefits.

Petitioner has failed to prove that its $20 million contribution to VEBA II in 1985 constitutes an ordinary and necessary business expense pursuant to section 162(a). Rule 142(a); INDOPCO, Inc. v. Commissioner, supra at 84. Respondent's determination is, therefore, sustained.

Decision will be entered for respondent.