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the plan, they are payable regardless of the period that
the employee is absent from work.
In Beisler v. Commissioner, 814 F.2d 1304, 1308 (9th Cir.
1987), affg. T.C. Memo. 1985-25, the U.S. Court of Appeals for the
Ninth Circuit, to which an appeal of a decision in this case would
lie, described the exception provided in section 105(c) and its
purpose as follows:
Section 105(c) * * * [excludes] from gross income certain
payments under accident and health plans that do not
resemble income, while including those that do. Section
105(c)(2) is a mechanism for accomplishing this purpose.
It excludes from gross income only those amounts of
accident and health insurance payments that are computed
with reference to the nature of the taxpayer's injury.
Only these payments are compensation for "the permanent
loss or loss of use of a member or function of the body,
or permanent disfigurement," and as such do not resemble
income. On the other hand, section 105(c)(2) includes in
income amounts that vary according to the amount of time
an employee is absent from work. These amounts resemble
income in that they tend to compensate a person for lost
wages.
To accomplish the congressional purpose of excluding
only those payments that compensate for permanent losses
of bodily function, the nature-of-the-injury requirement
is best read to require that benefits vary according to
the type and severity of a person's injury. Only then
are the payments and the injury sufficiently related to
reflect the compensatory purpose required by section
105(c). * * *
Thus, “amounts received as accident or health insurance benefits
may be excluded from gross income under section 105(c) only if paid
by a plan that varies the amount of payment according to the type
and severity of the injury suffered by the employee.” Id.
Benefits are not excludable under section 105(c) if the plan does
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