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Finally, section 106 works in conjunction with section
104(a)(3) and section 105(a). Section 106 excludes from an
employee's gross income the cost of employer-provided coverage
under an accident or health plan. Thus, if employer
contributions are not included in the employee's gross income
under section 106, the benefits attributable to such
contributions are governed by the inclusionary rule of section
105(a), rather than by the exclusionary rule of section
104(a)(3).
Petitioners contend that the disability payments received by
petitioner are attributable to contributions made by petitioner
and, thus, are excluded from petitioners' gross income under
section 104(a)(3). Specifically, petitioners argue that the
money used to pay the premiums for petitioner's long-term
disability policy would have been received by petitioner in his
weekly paycheck if he had selected cash in lieu of benefits.
From this, petitioners conclude that petitioner's disability
benefits are attributable to contributions made by petitioner,
rather than by Met Life. Alternatively, petitioners argue that
petitioner's disability payments are excludable from gross income
under section 105(c).
Respondent contends that petitioners must include
petitioner's disability benefits in gross income under section
105(a) because such benefits are attributable to contributions
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