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medical payments made by Dreyer Farms pursuant to its medical
plan (the insurance premiums and other medical care expenditures)
are excludable from the Weeldreyers’ gross income under section
105(b).
Section 162(a) permits a taxpayer to deduct all ordinary and
necessary expenses incurred during the taxable year in carrying
on the taxpayer’s trade or business. An expense is ordinary if
it is customary or usual within a particular trade, business, or
industry or relates to a transaction “of common or frequent
occurrence in the type of business involved.” Deputy v. du Pont,
308 U.S. 488, 495 (1940). An expense is necessary if it is
appropriate and helpful for the development of the business. See
Commissioner v. Heininger, 320 U.S. 467, 471 (1943).
When payments for medical care are properly excludable from
an employee’s income because they are made under a “plan for
employees”, they are deductible by the employer as ordinary and
necessary business expenses under section 162(a). Sec.
1.162-10(a), Income Tax Regs. Consequently, Dreyer Farms is
entitled to deduct the insurance premiums and medical
reimbursement payments under section 162(a).
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