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to the extent attributable to after-tax contributions by the
employee.8
However, section 105 provides two additional exceptions to
includability even for amounts attributable to employer
contributions or payments. Section 105(b) excludes amounts
expended for medical care. Section 105(c) excludes amounts
constituting “payment for the permanent loss or loss of use of a
member or function of the body, or the permanent disfigurement,
of the taxpayer, his spouse, or a dependent” which are computed
with “reference to the nature of the injury without regard to the
period the employee is absent from work.” Courts have
interpreted “with reference to the nature of the injury” as
referring to the plan distributions varying with respect to the
type and severity of the injury. Berman v. Commissioner, supra
at 940; Beisler v. Commissioner, supra at 1307.
8 As stated in Merker v. Commissioner, T.C. Memo. 1997-277,
Section 104(a)(3) excludes from gross income
amounts received by an employee “through accident or
health insurance for personal injuries or sickness”
except to the extent such amounts are (A) attributable
to contributions made by the employer which were not
includable in the gross income of the employee, or (B)
paid by the employer. Section 105(a) is essentially
the mirror image of section 104(a)(3), and, subject to
two exceptions, includes in the gross income of an
employee amounts received through accident or health
insurance for personal injuries or sickness to the
extent such amounts are (A) attributable to
contributions by the employer which were not includable
in the gross income of the employee or (B) are paid by
the employer. [Fn. ref. omitted.]
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