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In addition, taxpayers may fully deduct all ordinary and
necessary expenses paid or incurred during the taxable year
carrying on a trade or business. Sec. 162(a). Ordinary and
necessary business expenses include the reimbursement of employee
benefit plan expenses to an employee for expenses the employee
pays or incurs. Sec. 162(a)(1); sec. 1.162-10, Income Tax Regs.
The deductibility of health insurance costs paid or incurred by
self-employed individuals, however, is subject to the special
rules of section 162(l). For 2001, self-employed individuals are
allowed to deduct only an amount equal to 60 percent of the
amount paid or incurred during the year for health insurance.
Sec. 162(l)(1)(A) and (B).
Respondent argues that Mrs. Snorek, a self-employed
individual, paid her own health insurance premiums, and therefore
the premium payments are only 60 percent deductible under section
162(l). Petitioners counter that Mr. Snorek, an eligible
employee under the plan, paid the health insurance premiums for
Mrs. Snorek, and further argue that Snorek Upholstery reimbursed
him. They argue, therefore, that the health insurance premiums
for Mrs. Snorek are fully deductible as an ordinary and necessary
business expense. We disagree.
Petitioners failed to provide evidence that Mr. Snorek, the
eligible employee, paid the health insurance premiums for Mrs.
Snorek or that he was reimbursed by Snorek Upholstery for that
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Last modified: May 25, 2011