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Ralph Frahm provided benefits to the wrong person
when petitioners bought a health insurance policy with
Ralph, instead of with his employee, Erika, as the
primary insured. Petitioners fail to meet the require-
ments of I.R.C. § 162(a). Petitioners claim the dis-
puted expense as a business expense in the nature of
compensation for services rendered. The health insur-
ance policy was taken out in Ralph Frahm’s name. While
his wife benefited incidentally from this, as his
covered spouse under the policy, it can hardly be said
that she was compensated by petitioners buying insur-
ance for Ralph Frahm and his dependents. * * * [Repro-
duced literally.]
As we understand respondent’s position, respondent is
arguing that if an employer maintains a health plan described in
section 105 that covers one or more employees, such employee(s)’
spouse(s), and such employee(s)’ dependents, only the payments
that the employer makes for the medical expenses of the em-
ployee(s), and not the payments that the employer makes for the
medical expenses of the employee(s)’ spouse(s) and dependents,
constitute payments made pursuant to such a plan. Consequently,
according to respondent, any payment that the employer makes for
the medical expenses of the employee(s)’ spouse(s) and dependents
are not payments made to such employee(s) pursuant to an employee
benefit plan within the meaning of section 1.162-10, Income Tax
Regs. We disagree.
Section 105(b) provides in pertinent part:
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Last modified: March 27, 2008