Ricky Schmidt and Suzetta J. Schmidt - Page 15

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          for the medical care (as defined in section 213(d)7) of the                 
          employee and the employee’s spouse and dependents.  Sec. 105(b).            
               For the reasons set forth below, we agree with petitioners             
          that pursuant to sections 105 and/or 106 payments by Hillside               
          Dairy for medical expense reimbursements and health insurance               
          premiums need not be included in the Schmidts’ gross income for             
          1995, 1996, and 1997.                                                       
               Section 105(e) requires first, that the benefits be received           
          under a “plan”, and second, that the plan be “for employees”,               
          rather than for some other class of persons such as shareholders            
          and their relatives.  Larkin v. Commissioner, 48 T.C. 629, 635              
          (1967), affd. 394 F.2d 494 (1st Cir. 1968).  After giving due               
          consideration to the record before us, we conclude that Hillside            
          Dairy’s medical plan (payment of health insurance premiums and              
          medical expense reimbursements) satisfies both the “plan” and               
          “for employees” requirements of section 105(e).                             
               Section 1.105-5(a), Income Tax Regs., provides guidelines as           
          to what constitutes an accident or health plan.  A plan may cover           
          one or more employees, and different plans may be established for           
          different employees or classes of employees.  Id.  The                      
          regulations do not require that there be a written plan or that             
          there be enforceable employee rights under the plan, so long as             


               7Sec. 213(d)(1)(D) includes amounts paid for medical                   
          insurance in the definition of medical care.                                





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