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B. Medical Expenses
We first shall decide whether the payments by Wolf Creek
Farm of the medical expenses are excludable from Mr. Tschetter’s
gross income under sections 105 and 106 and deductible by the
corporation as ordinary and necessary business expenses under
section 162(a).
Under section 106, “an employee’s gross income does not
include employer-provided coverage (e.g., accident and health
insurance premiums) under an accident and health plan.” Rugby
Prods. Ltd. v. Commissioner, 100 T.C. 531, 535 (1993). The
employer may provide coverage under an accident or health plan by
paying the premium (or a portion of the premium) on an accident
or health insurance policy covering one or more employees or by
contributing to a separate trust or fund. Sec. 1.106-1, Income
Tax Regs.
Under the general rule of section 105(a), amounts received
by an employee through accident and health insurance for personal
injury or sickness, to the extent attributable to nontaxed
employer contributions, are includable in the employee’s gross
income. Amounts received under an accident or health plan for
employees are treated as amounts received through accident or
health insurance. Sec. 105(e). An exception to the general rule
allows an employee to exclude from gross income amounts received
to reimburse the employee for expenses incurred by the employee
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