Ronald Francis operated his sole proprietor farm in Pipestone, Minnesota. He hired his wife, Judith, under a written employment agreement that required Judith to keep the farm’s books, run business errands, and answer telephone calls.

The employment agreement between Ronald and Judith specified that Judith would receive $2,004 in wages and be an employee qualified for coverage under the proprietorship’s section 105 medical reimbursement plan. The proprietorship reimbursed Judith $9,502 for eligible medical expenses.

In its audit, the IRS disallowed ... Log in to view full article.