section 105 medical reimbursement

[Guest Mike Buckwald]

I have read some resoponse to children of self employed individuals not being able to utilize the medical reimbursement plan.

If a self employed individual is an employer, and has, as one of his employees, a non dependent child as a legitimate employee, does this employee qualify for the medical reimbursement plan??

[jaemmons]

No. Stock attribution (IRC 318) applies here, which makes the child an owner-ee of an unincorporated business.

[JohnCheek]

Why does IRC 318 have anything to do with unincorporated entities? 318 talks only about "stock".

The IRS has accepted medical plans that cover a spouse and dependents of a self-employed individual, if the spouse is really an employee of the entity. It would seem to me that the cost of a medical plan that covers a child who is a valid employee should also be deductible.

(See http://www.ebia.com/weekly/articles/2001/C...3IRSIssues.html )

[jaemmons]

318 attribution applies to unincorporated businesses also.

In any event, after doing a little more research, I am reading that 318 stock attribution does not apply when evaluating eligible employees for 105 purposes, as long as the employer can prove that the spouse is a common law employee.

After a second read, I noticed that the child is not a dependent of the sole proprietor, which would allow them to participate anyway.