Leo & Shawn M. Stephens, Petitioner

T.C.

Court: United States Tax Court

Decision Date: 2/25/2008

Docket Number: 9171-06

Bluebook Citation: Leo & Shawn M. Stephens, Petitioner (T.C. 2008)

More Cases: T.C. decisions from 2008

5;/x- G~ /,,;;C,/,/ T .C . Summary Opinion 0008-1 8

UNITED STATES TAX COUR T

LEO AND SHAWN M . STEPHENS, P titioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 9171-06S . Filod February 25, 2008 .

Reggie L . Wegner , for petitioners .

Milan H . Kim and David Conrad , for despondent .

FOLEY, Judge : This case was heard ursuant to the provisions of section 74631 of the Inter' al Revenue Code i n effect when the petition was filed . Puruant to section 7463(b), the decision to be entered is not review ble by any other court ,

RVEU f EB 2 5 ZO8 and this opinion shall not be treated as precedent for any other case . The issue for decision is whether, pursuant to section 162(a), petitioners are entitled to deduct expenses related to employee benefit programs .

Background Petitioner Leo Stephens and his wife Shawn Stephens operate d a custom harvesting business, Stephens Family, LLC, that consisted of cutting, hauling, and selling grain (the harvesting business) . Through a joint venture with Mrs . Stephens's mother, Clair Schrock, Mr . Stephens also operated a farm on which they grew various crops and raised 30 to 40 head of cattle .

In January 1995, Mr . Stephens enrolled in a health plan through Blue Cross/Blue Shield of Kansas . Mr . Stephens was the named policyholder and his family (i .e ., his spouse and his four children) was covered under the plan . Mr . Stephens paid the plan premiums out of a joint bank account he owned with Mrs . Stephens .

In December 1998, Mr . Stephens, through AgriPlan/BizPlan, adopted an employer-provided accident and health plan for employees . The plan provided for full reimbursement for health insurance costs to eligible employees and their families . In addition, eligible employees qualified for reimbursement of up to $15,000 for out- of-pocket medical expenses . To be reimbursed, eligible employees were required to submit a transmittal form to AgriPlan/BizPlan indicating the amount the employee paid or health insurance and out-of-pocket medical expenses during th year . AgriPlan/BizPla n would then process the transmittal form nd issue a statement to the employer stating the amount the empl yer should reimburse th e eligible employee .

On January 1, 1999, Mrs . Stephens e tered into an employment agreement with Mr . Stephens . Mrs . Steph ns agreed to d o bookkeeping for the businesses, run erra ds, prepare meals for the staff, answer phones, and do general field work and customary duties . The employment agreement specif ted that Mrs . Stephens would be paid $2,000 annually and be an eligible enrollee unde r the AgriPlan/BizPlan .

In 2001, Mrs . Stephens worked 1,17211 hours for the harvestin g business and the farm and was issued a F' orm W-2, Wage and Ta x Statement (Form W-2) . Thereafter, she s ubmitted an employe e benefit expense transmittal form to Agri Plan/BizPlan claimin g that, in 2001, she had paid $8,650 for edical expenses . Of thi s total, $4,978 was attributable to the h 0lth insurance premiums relating to the Blue Cross/Blue Shield !an, and $3,672 was attributable to out-of-pocket medical e penses . These expense s were paid out of petitioners' joint ban account, and petitioner s were not reimbursed . On the Schedule F, Profit or Loss from Farming, accompanying their 2001 return, petitioners deducted $8,661 for employee benefits programs .

In 2002, Mrs . Stephens worked 1,258 hours for the harvesting business and the farm and was issued a Form W-2 . Thereafter, Mrs . Stephens submitted an employee benefit expense transmittal form to AgriPlan/BizPlan claiming that, in 2002, she had paid $11,242 for medical expenses . Of this total, $5,985 was attributable to the health insurance premiums relating to the Blue Cross/Blue Shield plan, and $5,257 was attributable to out- of-pocket medical expenses . These expenses were paid out of petitioners' joint bank account, and petitioners were not reimbursed . On the Schedule F accompanying their 2002 return, petitioners claimed an $11,531 deduction relating to employee benefits programs .

On February 17, 2006, respondent issued petitioners a notice of deficiency and determined deficiencies relating to 2001 and 2002 . Respondent determined that petitioners were not entitled to deduct 100 percent of their medical expenses on Schedule F as ordinary and necessary business expenses . Respondent did, however, allow petitioners a deduction, pursuant to section 162(1), for 60 percent of the $4,978 health insurance premium payments relating to 2001 and 70 percent of the $5,985 health insurance premium payments relating to 2002 .

On May 15, 2006, petitioners, while !residing in Colby , Kansas , filed their petition with the CoLirt .

Discussion Section 162 ( a) allows a deduction f ~ r all ordinary and necessary expenses paid or incurred in cl 4rrying on a trade or business .

Ordinary and necessary busine Ss expenses include th e reimbursement of employee benefit plan el Xpenses paid or incurred by employees .

Sec . 162(a)(1) ; sec . 1 .16 V-10, Income Tax Regs .

Petitioners contend that their health in surance and out-of-pocket medical care expenses are fully deducti ~ le . Pursuant to section 162(1 ), petitioners, however , are allow d to deduct only 6 0 percent of the amount paid for health i ~ Surance in 2001 and 70 percent of the amount paid for health irk surance in 2002 . Sec .

162(1 )( 1)(A) and ( B) . Accordingly, we ustain respondent's determinations that petitioners ' health insurance expenses ar e subject to section 162 ( 1) . In addition, pursuant to sectio n 162(a ), petitioners ' out-of-pocket media' al care expenses are not ordinary and necessary business expense s ,and, therefore, are no t deductible .

Contentions we have not addressed re irrelevant, moot, or meritless .

To reflect the foregoing, Decision will be entere d for respondent .

  1. Unless otherwise indicated, all ection references are to the Internal Revenue Code of 1986, as am 'nded and in effect for the years in issue .

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