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Article Date:
May 2006

Word Count:



Roadmap for Producing a Deductible Section 105 Medical Reimbursement Plan

This article summarizes a court case that involved a sole proprietorship day-care center owned by Maureen Speltz. Her husband worked at a full-time job, had a couple of side businesses, and also worked for Mrs. Speltz in her business. In this case, the IRS said that Mrs. Speltz, the sole proprietor, could not deduct $3,279 in 2000 or $4,539 in 2001 in section 105 medical reimbursements because1



the section 105 plan was improper;


the section 105 plan failed on its own terms;


Mr. Speltz was not a bona fide employee of the business;


the medical reimbursements were not ordinary and necessary business expenses;


the medical reimbursements were not reasonable based on the hours worked and the work performed; and if all of these failed


the insurance part of the reimbursement was improper because it was deductible as a self-employed expense, not as a Schedule C expense.

You have to admire the IRS’s laundry list of assertions. Most people would have been intimidated. Not Mrs. Speltz, who beat the IRS like a rug and won her deductions for the section 105 plan.


Also, notice that this was a 2006 case that dealt with tax years 2000 and 2001. You can see that the wheels of justice grind slowly.


Put the Plan in Writing


With the help of her tax advisor, Mrs. ... Log in to view full article.

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