Charles Markham, EA <goaheadandspamaway[at]aol.com> wrote:

- quote -

Permit me to do a bit of "parsing" of the applicable code
section. <g> It speaks of "...any subsidized health plan
maintained by any employer..." Note that it doesn't specify
~who~ provides the subsidy or ~who~ benefits from it.
Further, it doesn't speak of subsidized PREMIUMS.

For example, if an employer had negotiated reduced rates for
a group plan on the condition that the employer provide its
own personnel to do much of the claims screening, wouldn't
that plan be "subsidized" REGARDLESS of the fact that the
COBRA participant might be paying 102% of the nominal (net
of subsidy) premium?

As another example, my state has from time to time offered a
"basic healthcare plan" wherein premiums for lower income
participants are computed on a sliding scale (rather than
traditional medical underwriting principles). If an employer
facilitated its employees' participation in that plan,
wouldn't that be a "subsidized" plan regardless of whether
the employer made any additional financial contribution to
it?

And, on the "employer" issue, what would you think where an
employer offers continuing coverage to retirees AND pays a
portion of the cost? (Few employers do that anymore, but
I've seen some.) Is it reasonable to conclude that since the
employment relationship isn't CURRENT, the limitations of
the code section ~don't~ apply?

MTW

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"Timothy E. Kelly, Esq." <tim[at]timkelly.com> wrote:

- quote -

Not only isn't a COBRA payment "subsidized" by an employer
but employers are allowed to charge (and all do) a 2%
administration fee--so your COBRA payments are 102% of the
premium that the employer is being billed for. I don't know
what Congress was thinking, but I have a hard time thinking
that anybody is ever going to call a COBRA payment
"subsidized" if the facts are offered that way.

Charles Markham, EA

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Timothy E. Kelly, Esq. wrote:

- quote -

I would agree that the clear language of Section
152(e)(1)(A)(iii) didn't seem to require a marriage and
later divorce. At best it required a reference to the
pre-1984 section which had the same *title* ("Support test
in case of child of divorced parents, etc.") and referenced
only marital style agreements. The "theory" of the IRS
would have to be that Congress intended 152(e)(1)(A)(iii) to
simply be a "special case" for married taxpayers, much like
the rules for qualifying for head of household status if you
are married.

But, as is clear, the plain language of the statute is very
clear and the IRS interpretation *creates* ambiguity by
looking for words that *aren't* there.

Now, that said, as I recall there were two GCMs (or similar
documents) that came to opposite conclusions.

--
Ed Zollars, CPA
Phoenix, Arizona

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Timothy E. Kelly, Esq. <tim[at]timkelly.com> wrote:

- quote -

That's a good point. But let's not overlook the following
sentence from that case:

"The legislative history of a statute is secondary when we
can apply the plain meaning of unambiguous text; however,
unequivocal evidence of clear legislative intent may
sometimes override a plain meaning interpretation and lead
to a different result."

So, in other words, ~sometimes~ the clear language applies,
~sometimes~ it doesn't. How are mere mortals like you and me
supposed to know the difference? <g
- quote -

Sure, you can do that if you and the client so agree. But,
as I noted earlier in this thread, this all comes down to a
question of "risk" and "client temperament."

MTW

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

Actually, I think that result is "intended" (whether
Congress knows it or not <g> ). Remember, my interpretation
of the entire section is that Congress generally sought to
limit the deduction to circumstances where you had no
practical alternative but to buy your own policy.

Clearly, Medicare is a subsidized plan. And, clearly, it
relates to employers (although, arguably, it is not
~maintained~ by employers). Therefore, in my little world
<g> , this is exactly the kind of circumstance in which
Congress sought to limit the deduction for SE medical.

MTW

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For an example of how the Tax Court applies the plain
language of a statute, and the legal precedents associated
with this topic, see the recent section 152 (8332) tax case
on other threads. In that case the IRS refused to
acknowledge the clear language of "living apart," and was
overruled, GCMs and all.

Section 162(l)(2)(B) uses the term employer in the present
tense, not in the past tense. It also uses the term
subsidized. "Subsidized" means that financial support is
included. COBRA payments are usually paid completely by a
former employer.

In other words, until a judge says otherwise, why not err to
the advantage of the client when a reasonable interpretation
allows a tax professional to do so?

Timothy E Kelly, Esq.
Certified Specialist
Taxation Law
Board of Legal Specialization
State Bar of California

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

Well, there are many things about this section that are "not
clear." And, with respect to "employer," the broadly
inclusive term "any" DOES appear. <g
An example of a "subsidy" that doesn't directly impact
individual premiums would be where the employer has entered
into a negotiated group contract whereunder the employer
provides its own HR personnel to perform the initial claim
screening and processing (I've seen plans like that,
typically with larger employers). If that doesn't represent
a "subsidized health plan maintained by [an] employer," then
I don't know what does. <g
Congress ~could~ have said something like, "...if the
taxpayer is currently participating in a plan whereunder the
employer pays some or all of the premium on the taxpayer's
behalf...," but they didn't say that.

MTW

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Arthur L. Rubin wrote:

- quote -

I think it's a bit of a stretch to get "former" in there,
since the word employer by itself implies a present status
in its plain meaning. That is, if asked who your employer
is, you wouldn't tell me someone that hired you years ago in
a part time job in college--you'd give me whoever employs
you now. The sentence in question seems written in the
present tense, so it seems to make the most sense to
interpret it that way.

Second, if you logically carry that one forward nobody over
65 who ever worked for anyone else and is eligible for
Medicare would be ineligible for this deduction, since
arguably that coverage is partially subsidized by
contributions made by your prior employer.

That said, I do agree with Michael's observation that the
issue is *qualification* to participate in an employer's
plan, not whether you actually do.

--
Ed Zollars, CPA
Phoenix, Arizona

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Michael T Wing CPA wrote:
- quote -

"Premium" doesn't appear (although it's not clear what else
can be subsidized), but, although "present" doesn't appear,
neither does "former".

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

Agreed, that would be a better question. And, no, I haven't
heard of that particular scenario. Anyone ???

- quote -

Well, this ultimately comes down to a question of "risk." I
do pay at least some attention to IRS ramblings because most
of my clients prefer to AVOID controversy and stay BELOW the
radar screen. Often the cost of being "right" can exceed the
tax savings involved by many times. If, on the other hand,
one has clients who like to ride the bleeding edge and camp
outside of a courthouse, then that's a different matter. <gThe exact balance here is a question of "client temperament"
and "professional judgment."

MTW

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ed <ed[at]edcosoft.com> wrote:

- quote -

That is certainly a popular ~interpretation~. However, I point
out that the words "premium" and "present" do NOT appear in the
code section itself:

"Paragraph (1) shall not apply to any taxpayer for any
calendar month for which the taxpayer is eligible to
participate in any subsidized health plan maintained by any
employer of the taxpayer or of the spouse of the taxpayer."

MTW

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Michael T Wing CPA wrote:

- quote -

Of course, remember that unless you pay for a private letter
ruling, the "IRS" can say virtually anything because what
you really have is just an employee of the IRS speaking off
the top of his/her head. And, their standard bias is going
to be "if in doubt, and if not going to court, say it's not
deductible <grin> " since that answer seems less likely to
get them in trouble.

Their "unofficial" advice can only come back to haunt the
individual employee if someone takes a position that later
proves to cause them to owe tax and potential penalties on
an assessment, and that taxpayer then establishes that an
IRS employee (whom, should the IRS be playing hardball in
assessing the penalty, they would identify) gave erroneous
advice. Given that knowledge, which advice would you give
<grin> ?

Better question would be this--do you know of anyone that
has gone for a private letter ruling on this one and was
told at that point the IRS would issue a *negative* ruling,
so withdrew it?

As I said, the IRS could very well issue guidance more
strictly interpreting this provision. But until they do so,
I don't pay much attention to the IRS's "unofficial" musings
on the matter when there's no binding guidance likely coming
down the pike. Rather, I look to the Code and similar
provisions that have binding guidance for how to interpret
that language to the extent it's not totally clear (like
just what is a plan in this context). And, frankly, all of
those items seem to argue against the narrow view of such an
IRC provision.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

We'll have to see if this changes now that 100% is
deductible (thereby making the issue a bit more "material")
and the IRS is doing "compliance audits" (I would ~think~
they would be focusing on issues like this). But, I wouldn't
be surprised if there is no big change in the Service's
apparent lack of regulatory interest in this issue.

Meanwhile, I continue to point out that I have seen credible
anecdotal reports wherein people claim they've been advised
by the IRS that SE medical deductions may NOT be claimed
with respect to COBRA or Medicare payments because such
don't represent plans established with respect to YOUR
business and/or they bare the taint of an "employer"
<ducking> plan.

MTW

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Harry Boscoe wrote:

- quote -

I wouldn't let the IRS off the hook here--where statutory
language is subject to multiple interpretations, that's
*exactly* the situation where the IRS has the authority to
clarify the meaning via regulations. Witness what the IRS
did with Section 121 and the conflicting interpretations of
how to handle business use.

To me the far more interesting, and telling, fact is that,
the last time I checked, there is very little in the way of
Tax Court rulings on this issue. Now since pro se taxpayer
take absolute slam dunk "loser" issues to the Tax Court all
the time (my social security shouldn't be taxable because it
isn't fair <grin> ), I can't believe that dearth of cases
exists because taxpayers have given up before getting to
court.

Rather it suggests to me that the IRS simply is currently
willing to give a wide reading to Section 162(l) and doesn't
want to force the issue at this point. I suspect they are
concerned about getting politically slammed if they seem to
be "picking on" proprietors, but also want to preserve the
option later to "tighten up" the rule via regulation if it
appears that a lot of abuse is going on. I also suspect the
numbers involved simply have never been high enough to put
this onto a priority track for issuing guidance.

--
Ed Zollars, CPA
Phoenix, Arizona

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Michael T Wing CPA wrote:

- quote -

Well, the technical issue is simply this--what is a "plan"
for this purpose? The IRS has ruled, for purposes of the
exclusions for employer provided health insurance, that a
plan that reimbursed employees for amounts paid on
individual policies qualified for exclusion from income.
Thus, the "plan" wasn't the policy, but rather the agreement
between the employer and the employee to pay for insurance,
even though the employee actually personally acquired the
policy and was the one had signed the contract to pay the
premiums. While the ruling predates COBRA, there appears to
be no *statutory* reason why that would change the result.

Now we get to Section 162(l), a provision where the IRS has
decided to give no binding guidance whatsoever on what is
meant by a plan, despite the fact that the provision has now
been in the IRC a long time. I would argue that a
reasonable interpretation, pending official IRS guidance, is
to look to the rules under the employer provided insurance
for what is a plan.

Could the IRS issue regulations tomorrow that more narrowly
define this? Yes, they could. Have they? No, they
haven't. Until then the rule is a "reasonable
interpretation" of the law, and one clear way to build that
reasonable interpretation is to look to other similar
provisions and use the rulings and cases from there.

--
Ed Zollars, CPA
Phoenix, Arizona

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cj.green[at]worldnet.att.net (Christopher Green) wrote:
- quote -

<snip
- quote -

Some learned commentators have offered up this: If the
"plan" of the S corp is [or includes a provision] to
reimburse [and/or, maybe, to pay directly] the health
insurance premiums of its employees, then the front page SE
health insurance premium deduction should be available to
the shareholder who is covered by this plan, if the right
steps are taken.

The point being made by these commentators is that a
"policy" and a "plan" are not the same thing, and - if done
properly - an S corp's payment of premiums for its
employees' policies under a "plan" adopted by the S corp can
achieve the Form 1040 page one deduction.

You probably will not be able to find authority for this,
because IRS and Treasury are - IMHO - running away from this
issue because they can't understand it, either. The law
covering this situation was written by Congress; more need
not be said.

--Harry B.

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Christopher Green <cj.green[at]worldnet.att.net> wrote:

- quote -

I agree with you, at least to the point that this issue is
~unclear~. However, ~some people~ around here <g> definitely
disagree.

MTW

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cj.green[at]worldnet.att.net (Christopher Green) wrote:
- quote -

Have your S-corp make a "plan" to pay the health insurance
premiums for your employees. The plan is to pay premiums,
not the insurance plan. You can deduct COBRA because it is
not subsidized by your present employer, and the plan to pay
the premiums is established by your business. Same applies
to Medicare and SS. premiums. ed

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jaysteel9667[at]aol.com (Jaysteel9667) wrote:

- quote -

I suggest the S-corp pass a resolution to establish a *plan*
to reimburse employees for their families' health insurance
premiums. The reimbursement is written off as non-SS wages
to a 2% or greater stockholder, and a business expense for
ordinary employees. The 2% owner is hence reimbursed with
taxable dollars, deductible by the S-corp, but he can write
off 100% of the premiums on 1040 line 29 as SE Health
Insurance Premiums. This is better than deducting on
Schedule A because it is automatically 100% and reduces AGI.
The "plan" is to pay premiums (not the specific plan of
insurance) established by the Corporation. The only thing
you can't write off is a premium subsidized by a present
employer.

Ed

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jaysteel9667[at]aol.com (Jaysteel9667) wrote:

- quote -

You can deduct them on Schedule A (subject to the 7.5% of
AGI haircut) even if you don't pay them through the S corp;
making payment through the S corp just complicates things.

What I think you can't do is take them as the adjustment to
income for self-employed. COBRA plans are under your former
employer's business, but the rule for the adjustment is that
the plan be established under your own. (If anybody takes a
different interpretation, I'd like to hear it, because it's
material to an acquaintance of mine.)

--
Chris Green

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