Corporation of one person

[bcspace]

A corporation is composed of only one person who is the only officer, CEO, CFO, employee, whatever you want to call him and it is very likely that he will never hire someone or partner with anyone else. Seems unlikely, but is there any way for this person to benefit from a cafeteria plan in this case?

[J Simmons]

If he's the only one, you don't need a 125 plan to overcome the constructive receipt of taxable income that attends individual choice of cash/taxable benefit or tax free benefits.

The corporate board of directors can resolve to provide this individual health insurance, at the corporation's expense, and it will be tax-free to the individual under IRC 106.

The corporate board of directors could also promise medical expense reimbursement and it would be tax-free to the individual under IRC 105h, provided (a) the individual does not own more than 2% of the corporation or (b) the corporation is a C corporation.

If an S corporation and the individual owns more than 2%, he'd be ineligible for 125 plan participation. If a C corporation and he owns or is deemed to own 5% or more (or he is otherwise a key employee, IRC 416i), he'd be eligible to participate in a 125 plan, but the absence of non-key employees would mean he'd get zero tax-free benefits--unless the POP only exception to testing under Prop Treas Reg § 1.125-7(f) applies.

[GBurns]

Good reply John.

But if a C corp and the Board does not want to pay the full cost, a cafeteria plan can be used to pre-tax the employee share.

[bcspace]

Ha! This is truly a corporation of one. There is no board of directors per se, just the one person, who also owns 100% of the company. There are no other employees of any sort.