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necessary business expenses, deductible by Waterfall Farms and
excluded from the Hubers’ income.
Petitioners contend that the medical costs are employee
benefits, deductible by the employer and excludable from the
employee’s income under sections 105 and/or 106. Petitioners
further maintain that Waterfall Farms provided food and lodging
to Mr. Huber in his capacity as an employee and that such was
done for the convenience of Waterfall Farms. Consequently,
petitioners assert that the food and lodging expenses are
employer-provided “meals and lodging”, the costs for which are
excluded from the Hubers’ income under section 119 and deductible
by Waterfall Farms.
B. Medical Expenses
We first shall decide whether the payments by Waterfall
Farms of the medical expenses are excludable from the Hubers’
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
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