Scorp SE Health Insurance for 2% Owner

[Harvey Lucas]

I just read the following in Kiplinger Tax Letter June 2nd, 2006 edition:

"One-person S firms face a tax problem on health insurance: Premiums on policies bought by sole owners aren't 100% deductible, according to the IRS....the premiums are medical expense subject to the 7.5% of AGI offset...."

Is anyone familiar with this?

This seems to contradict a very lengthy thread we all had some time back on this issue.

The consensus in the previous thread was that if the Scorp paid health insurance premiums for a 2% shareholder, the amount was to be added to his w2 wages box 1, but not to his SS and MC wages w2 boxes 3 and 5.....then he would deduct 100% of the health insurance premium amount on his 1040 as SE health insurance deduction.

Did something change?

HarveyLucas

[JG EA]

http://www.irs.gov/businesses/small/article/0,,id=157049,00.html

Dated May 15, 2006.
It has an article on this, here is one paragraph:

"Assuming there are no other subsidized health plans, the problem arises if the sole shareholder/ employee purchases the health insurance in his or her own name instead of that of the S corporation. In that case, the S corporation has not established a plan to provide medical care coverage, there is no fringe benefit paid to the 2% shareholder and the provisions of IRC §1372 do not come into play. Since the provisions of §1372 do not come into play, the S corporation is not treated as a partnership and the shareholder is not treated as a partner. Since the shareholder is not treated as a partner, the shareholder is not treated as self-employed and is not eligible for the above-the-line deduction treatment under IRC §162(l). The shareholder is still able to deduct the health insurance as an itemized deduction which is subject to the 7.5% AGI limitation."

[geekgirldany]

Found this on google groups about the article:

"That is, my position is that if the company meets the
requirements of Revenue Procedure 61-146, then individual
policies can be used. Now, as we've discussed in other
venues, there may be state law insurance issues in some
states with an employer plan constructed as outlined in
Revenue Ruling 61-146, but that is another issue.

So my take is that unless the IRS withdraws Revenue Ruling
61-146, it trumps this headliner."

[Bees Knees]

So my take is that unless the IRS withdraws Revenue Ruling
61-146, it trumps this headliner."

I'm not sure it would “trump” the headliner. Rev. Rul. 61-146 deals with employers that reimburse employees for individual policies purchased by the employees and excluding the benefits under Section 106.

The IRS headliner deals with shareholder/employees of an S corporation where the individual purchases the policy outside of the S corporation and does not have the S corporation reimburse the cost.

For Rev Rul 61-146 to trump the headliner, it would have to be an identical situation.

[veritas]

When I read the notice I understood it was talking about policies in the individual's name rather than the corporation.

[geekgirldany]

Okay thanks Bees got a little confused there for a moment.

So bottomline for it to be deductible... S-Corporation must reimburse shareholder/employee for the health insurance purchased under shareholder indivdiual name.

[Harvey Lucas]

Silly Question

[QUOTE=
".....if the company meets the
requirements of Revenue Procedure 61-146, then individual
policies can be used....."[/QUOTE]


Thank You geekgirldany,

How can I find Revenue Procedure 61-146?

HarveyLucas

[jimmcg]

Rev Procs

I use legalbitstream.com to research Rev Procs and Rulings among other things. I am sure irs.gov has it or when in doubt just "google it."

[geekgirldany]

yeah just google it and I believe the second or third link is to the rev.proc. Click on the cached link and it will highlight what you searched on. Makes it easier to find in a long document.

[Harvey Lucas]

Can' find it.

Seems that this should be a basic thing...and I am sure I am doing something wrong...but I can't seem to find Revenue Procedure 61-146?

I went to google as suggested, typed in Revenue Procedure 61-146...selected what appeared to be the most promising...that got me to the irs web site...there I typed in same but no luck?

Also as suggested, I went to legalbitstream.com, typed in same, no luck?

Any idea's as to what I am doing wrong?

Thank You,

HarveyLucas

[Bees Knees]

It's not a Revenue Procedure. It is a Revenue Ruling.

Here is the link:

http://www.taxlinks.com/rulings/1961/revrul61-146.htm