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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
for the medical care (as defined in section 213(d)) 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 Waterfall
Farms for reimbursement of medical care costs (including
reimbursement for the health insurance premiums) need not be
included in the Hubers’ 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
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