Max amount for Medical Expense Reimbursement

[SLuskin]

A law firm client has asked to raise the cap from $15,000 (they do pass their discrimination tests) to $75,000. I have told them no, based on the fact that they have many employees who do not earn at least $75,000. Therefore, that benefit would not be available to those employees. The law firm is not buying it. Any help or ideas here? Thank you.

[g8r]

If you're hired to provide legal advice, then I'd write an opinion referring to the 105(h) regs - it's not clear from the regs but I agree with you on this point.

If you aren't their legal counsel, I'd put your position in writing and state that you are merely a service provider and have no responsibility for any erroneous legal positions that they may take.

[GBurns]

If you do decide to administer this plan, I suggest that you do document your decision in writing. Our local IRS District Office would have a field day holding you as a responsible party to an abusive scheme under the new rules.

[Guest b2kates]

Query, how does the client propose to satisfy the 105h discrimination test at the 75,000 level? in light of the fact that the amount appears to be more than some employees earn.

[mbozek]

Since the law firm is both the employer and is capable of interpreting the tax law a TPA has no standing to question this decision. You do what the client tells you it wants to do by confirming the clients instructions in writing. Any tax issues will accrue to the employer not the plan administrator since it is the employer's plan.

[Kirk Maldonado]

I disagree slightly with Mbozek, in that I would advise you to put in writing that you think that the arrangement might not be acceptable, but that you will follow their instructions. I see little downside to documenting the fact that you have notified them that you have concerns with the change.

[GBurns]

Under the Treas Regs regarding Tax Shelters etc, not only is the definition of a Return Preparer broad enough to include a TPA, there are other sections that also would create liability for anyone who has any connection to the issue.

You have an accident while driving a car, it does not matter that it is not your own car. You obstruct traffic and someone else has an accident, it still does not matter tha it was not your car.

Analogy aside, look at the Treas Regs and Circular 230 (both current and Proposed).

[mbozek]

While I would tend to concur with Kirks advice, I would not put anything in writing unless I was sure that the proposal was not permitted under the tax law because making such a comment could cost you a client. I suggest that you review reg. 1.105-11©(3).

[SLuskin]

Thank you everyone. What I did was put the client in touch with the attorney that we use for docs and thorny questions and let them thrash it out. The jury is still out, but the attorney will put her recommendations in writing and the client will agree or disagree in writing. This attorney will not endorse such a high cap and has certainly advised the client about not offering a benefit that the lowest paid eligible employee could not afford.

[Lori Friedman]

SLuskin, It looks as if we have concensus (actually, a somewhat rare event at his message board).

The entire amount of each employee's election must be available at all times during the period of coverage. Presumably, someone could elect and use the full $75,000, even though the amount will exceed his/her compensation for the year.

[GBurns]

See what too much spiked egg nog causes.

Happy Holidays to all.