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Commissioner, T.C. Memo. 1971-238; Smith v. Commissioner, T.C.
Memo. 1970-243; Bogene, Inc. v. Commissioner, T.C. Memo.
1968-147.
Respondent has stipulated that during the years at issue Mr.
Schmidt was an employee of Hillside Dairy. Indeed, Mr. Schmidt
was the corporation’s only employee. And without Mr. Schmidt’s
involvement, Hillside Dairy could not have raised its crops or
conducted its dairy operations.
Mr. Schmidt’s compensation for services rendered to Hillside
Dairy was his salary and employee benefits. Respondent does not
contend that Mr. Schmidt received excessive compensation.
Indeed, respondent contends that Mr. Schmidt was undercompensated
for his services
Although Mrs. Schmidt did not work for Hillside Dairy,
payment of her medical expenses was based on her status as Mr.
Schmidt’s spouse. Likewise, payment of the medical expenses for
the Schmidts’ children was based on their status as Mr. Schmidt’s
dependents. The derivative participation of Mr. Schmidt’s spouse
and dependents is plainly contemplated both by the medical plan
and by section 105(b).
On the basis of the record before us, we conclude that
medical payments for the benefit of the Schmidts and their
children were made under a plan for employees and not for
shareholders. Accordingly, during the years at issue, the
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