T.C. Memo. 2007-351

UNITED STATES TAX COURT

RALPH E. FRAHM & ERIKA C. FRAHM, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15572-05. Filed November 27, 2007. 

Frank W. Bastian and Reggie L. Wegner, for petitioners.

Henry N. Carriger, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined deficiencies of

$1,941, $2,984, and $2,293 in petitioners’ Federal income tax

(tax) for their taxable years 2000, 2001, and 2002, respectively.

We must decide whether petitioners are entitled for each of

their taxable years 2000, 2001, and 2002 to deduct under section
- 2 -

1All section references are to the Internal Revenue Code in

effect for the years at issue. All Rule references are to the

Tax Court Rules of Practice and Procedure. 

162(a)1 certain amounts in excess of those conceded by respondent

for “Employee benefit programs” that petitioners claimed in

Schedule F, Profit or Loss From Farming (Schedule F), included as

part of petitioners’ tax return for each of those years. We hold

that they are. 

FINDINGS OF FACT

All of the facts in this case, which the parties submitted

under Rule 122, have been stipulated by the parties and are so

found except as stated below.

Petitioners resided in Newton, Iowa, at the time they filed

the petition in this case. 

At all relevant times, petitioner Ralph E. Frahm (Mr. Frahm)

owned and operated a grain and livestock farm (farming business)

in Newton, Iowa.

During 2000, 2001, and 2002, the years at issue, Mr. Frahm

had one employee in his farming business, viz., his spouse

petitioner Erika Frahm (Ms. Frahm). During those years, Ms.

Frahm performed field jobs, cared for livestock, assisted with

machinery repairs, maintained bookkeeping records, and performed

certain other tasks that were usual and customary to Mr. Frahm’s

farming business. During each of the years 2000, 2001, and 2002,

Mr. Frahm paid Ms. Frahm annual wages of $3,000 for those ser-
- 3 -

vices, from which he withheld Social Security tax and Medicare

tax totaling $229.50. 

On August 17, 1998, Mr. Frahm signed a preprinted form that

was an authorization to provide a medical reimbursement plan

under AgriPlan/BizPlan to eligible employees. The preprinted

form on which that authorization appeared stated in pertinent

part:

SECTION 1 - Employer Information

Business owner last name: First: 

 Frahm Ralph 

 * * * * * * * 

Business name: Type of business: Check one:

 Ralph Frahm Farming : AgriPlan 9 Biz 

 * * * * * * * 

SECTION 2 - Eligibility Criteria

To be eligible for benefits, employee(s) must meet each of the

following requirements. * * * 

: Part-time employees must work an average of 25 hours per 

 week. (maximum=25 * * *) 

: Seasonal employees must work 7 months per year. 

 (maximum=7 * * *) 

: Employees must be 25 years of age. (maximum=25) 

: Employees hired prior to today (Current Employees) must have 

 been with employer for 0 months. (maximum=36)

: Employees hired after today (New Employees) must be with 

 employer for 36 months. (maximum=36) 

SECTION 3 - Eligible Employees

Employees listed below meet all requirements of Section 2 and are

considered current employees as of the date of this agreement. 

 * * *

Employee Last Name First Name Social Security Number 

1. Frahm Erika * * * 

 * * * * * * * 
- 4 -

2The title of Mr. Frahm’s Wellmark Plan C application is not

disclosed by the record. 

SECTION 4 - Selection of Benefits

The benefits and amounts selected below will be offered to each

employee (and their family) listed in Section 3. * * * The

employer agrees to reimburse: 

: Health Insurance Premium reimbursements up to $ ALL (may use 

 ALL).

: Out of Pocket medical reimbursements up to $5000.

9 Dental Insurance Premiums. 

The benefits selected below will be offered to the employee only

(other family members excluded):

9 Employee Term life Insurance ($50,000 Maximum) 9 Employee 

 Disability 

 Insurance 

SECTION 5 - Authorization and Payment

The undersigned employer [Mr. Frahm] hereby executes this

agreement on the 17 day of Aug, 1998 and the plan start date shall

be January 1st of this year * * * [Reproduced literally.] 

During each of the years 2000, 2001, and 2002, pursuant to

the authorization that he signed to provide a medical reimbursement plan under AgriPlan/AgriBiz, Mr. Frahm provided such a plan

(AgriPlan/AgriBiz medical reimbursement plan) for the benefit of

Ms. Frahm and her family (i.e., Ms. Frahm and her spouse Mr.

Frahm). At all relevant times, Ms. Frahm met the eligibility

requirements to receive benefits under that plan. 

On a date not disclosed by the record prior to July 1, 2000,

Mr. Frahm completed a preprinted application form (Mr. Frahm’s

Wellmark Plan C application)2 in which he applied to

Wellmark/Blue Cross and Blue Shield of Iowa (Wellmark) for a socalled Plan C health insurance policy to cover himself and Ms.
- 5 -

3Mr. Frahm circled “Plan C” as the “Health Care Plan” for

which he was applying. 

Frahm. In that application, Mr. Frahm identified himself as

“Applicant” and Ms. Frahm as “Spouse”. The portion of Mr.

Frahm’s application entitled “Enrollment Information” stated in

pertinent part: 

1. The Health Care Plan you are 

 applying for is: (PLEASE CIRCLE ONE)

 Plan A Plan B Plan C[3]

 Plan D Plan E Plan F

 Plan G Plan H

2. This request for 

 coverage is for: 

 (check all that 

 apply)

 : Self

 : Spouse

 9 Child(ren)

3. This application 

 is for: (check 

 all that apply)

 9 New Enrollment 

 9 Change 

 9 Adding/Removing 

 Dependents 

* * * * * * * 

5. How do you want to pay your premiums?

 9 Direct Bill. If so, on what basis? 9 Quarterly 9 Semi-annually 

 9 Automatic Account Withdrawal. If so, on what basis? (Include a voided check.)

 9 Monthly-1st of the month 9 Monthly-5th of the month 9 Quarterly 9 Semi-annually 

 From: 9 Checking or 9 Savings * * * 

6. The amount you are submitting is: $ (One check or money order per application, made 

 payable to Wellmark, Inc.)

 a. Will your employer be paying any part of the premium for this policy either directly or 

 through wage adjustments or other means of reimbursement? : No 9 Yes 

 If yes, explain: 

 b. Will your premium payments for this coverage be deductible on your federal income tax 

 return as a trade or business expense other than the special health insurance deduction 

 available to self-employed persons? : No 9 Yes

7. Qualifying previous coverage Date of termination of previous coverage: 

 Has this coverage been in effect for 12 consecutive months or more? 9 Yes 9 No 

 What type of coverage did you have? 9 Employer Group 9 Individual

 9 Short Term Major Medical 9 Group Conversion 9 Other (please identify) 

 Who was your previous insurer? BC/BS If Blue Cross/Blue Shield (BCBS), give details 

 below. 

 Name of Contract Holder Ralph Frahm I.D. Number 

 Group or Employer Name FB Group Name of Blue Cross/Blue Shield Plan 

 : I want continuous coverage from my previous BCBS program. 9 I do not want continuous 

 coverage from my previous BCBS 

 program.

Wellmark approved Mr. Frahm’s Wellmark Plan C application

and issued a health insurance policy to him (Mr. Frahm’s Wellmark

Plan C policy) that covered himself and his spouse Ms. Frahm. 

During 2000, Ms. Frahm paid the following premiums totaling
- 6 -

4The parties stipulated that during 2000 Ms. Frahm paid to

Wellmark premiums totaling $6,254 for Mr. Frahm’s Wellmark Plan C

policy. That stipulation is clearly contrary to the facts that

we have found are established by the record, and we shall disregard it. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181,

195 (1989). The record establishes, and we have found, that

during 2000 Ms. Frahm paid directly to Wellmark premiums totaling

$6,252.60 for Mr. Frahm’s Wellmark Plan C policy.

$6,252.604 for Mr. Frahm’s Wellmark Plan C policy on the dates

indicated by a check drawn on, or electronic transfers from, an

individual checking account that she maintained (Ms. Frahm’s

individual checking account):

Date of Payment Amount of Payment

06/22/2000 $1,042.10

08/08/2000 1,042.10

09/05/2000 1,042.10

10/06/2000 1,042.10

11/08/2000 1,042.10

12/05/2000 1,042.10

During 2000, Ms. Frahm paid by an electronic transfer from

Ms. Frahm’s individual checking account premiums of $55.46 for a

health insurance policy issued in Ms. Frahm’s name by American

Association of Retired Persons (Ms. Frahm’s AARP policy). During

that year, Ms. Frahm paid by a check drawn on Ms. Frahm’s individual checking account premiums of $548 for a cancer insurance

policy issued in Ms. Frahm’s name by Conseco Health Insurance

Company (Ms. Frahm’s Conseco policy). 

During 2000, in addition to the premiums that Ms. Frahm paid

for Mr. Frahm’s Wellmark Plan C policy, Ms. Frahm’s AARP policy,

and Ms. Frahm’s Conseco policy, Ms. Frahm paid a total of $3,325
- 7 -

5The noninsurance medical expenses paid by Ms. Frahm during

2000 are not at issue in this case. 

6The amount shown is the amount, rounded to the nearest

dollar, of the total (i.e., $6,857.06) of all of the premiums

shown in “Section 2. Insurance Benefits” quoted below. But see

infra note 9.

7We have not attempted to determine whether the “Medical

expenses from 2000 plan year” of $2,082 shown under “BENEFIT

TOTALS” in Ms. Frahm’s 2000 employee benefit form, which consisted solely of noninsurance medical expenses, is the correct

total of all of the noninsurance medical expenses listed in

“Section 3 Medical Expenses" and “Section 4 Medical Expenses” of

that form. That is because those expenses are not at issue in

this case. See supra note 5. 

for certain medical expenses not covered by insurance (noninsurance medical expenses).5

Ms. Frahm submitted to AgriPlan/BizPlan a request for

reimbursement of medical expenses for 2000 totaling $10,182. 

That submission consisted of a preprinted form entitled “Employee

Benefit Expense Transmittal” (Ms. Frahm’s 2000 employee benefit

expense form) that Ms. Frahm had completed. That form, which Ms.

Frahm signed as employee, stated in pertinent part: 

EMPLOYEE STATUS

Gross W-2 wage to employee during 

2000 (other than benefits): 3000.00

 

* * * * * * * 

BENEFIT TOTALS

1 Medical/Health Insurance Premium

 (from Section 2) [6]6857.00

 * * * * * * * 

7 Medical expenses from 2000 plan year 

 (from Sections 3 and 4) [7]2082.00
- 8 -

8We have not attempted to determine whether the “Medical

expenses from 1999 plan year” of $1,243 shown under “BENEFIT

TOTALS” in Ms. Frahm’s 2000 employee benefit form, which consisted solely of noninsurance medical expenses, is the correct

total of all of the noninsurance medical expenses listed in

“Section 5 Medical Expenses" of that form. That is because those

expenses are not at issue in this case. 

9We have found that during 2000 Ms. Frahm paid premiums

totaling $6,252.60 for Mr. Frahm’s Wellmark Plan C policy. See

supra note 4. The record does not disclose why Ms. Frahm’s 2000

employee benefit expense form requested reimbursement of

$6,253.60 of premiums for that policy, which is more than the

amount of premiums that we have found she paid for that policy. 

8 Medical expenses from 1999 plan year 

 (from Section 5) [8]1243.00

 * * * * * * * 

READ, SIGN AND DATE

To the best of my [Ms. Frahm’s] knowledge and belief, my

statements in this transmittal are complete and true. I am

claiming only eligible expenses incurred during the applicable

plan year(s) and for eligible plan participants. I certify that

any part or all of these expenses have not been reimbursed

previously under this or any other benefit plan and have not been

previously claimed as a tax deduction. 

 * * * * * * * 

Section 2. Insurance Benefits 

 * * * * * * * 

 Major Medical/Health Insurance

 Insured Insurance

Company

Period of

Coverage

Annual Amount

Paid

Last Date

Paid

Wellmark Blue

Cross & Blue

Shield

 total 

 months 06 [9]6253.60 12/01/00

Conseco

Health Ins Co

(Cancer)

 total 

 months 12 548.00 04/07/00

AARP Health total 

 months 01 55.46 01/01/00
- 9 -

10The parties stipulated that Mr. Frahm issued to Ms. Frahm

certain checks included in the record that were drawn on the

business checking account as payment of her wages for 2000 and as

reimbursement for the insurance premiums and the noninsurance

medical expenses that she paid during that year. We have found

that during 2000 Ms. Frahm paid premiums of $6,252.60, and not

the $6,254 that the parties stipulated she paid, for Mr. Frahm’s

Wellmark Plan C policy. See supra note 4. We are unable to

ascertain from the record whether Mr. Frahm, as Ms. Frahm’s

employer, reimbursed Ms. Frahm for the $6,252.60 of premiums that

we have found she paid for Mr. Frahm’s Wellmark Plan C policy

during 2000 or whether he reimbursed her for the $6,253.60 of

premiums for that policy requested in Ms. Frahm’s 2000 employee

benefit expense form.

During 2000, Mr. Frahm, as Ms. Frahm’s employer, issued to

Ms. Frahm certain checks that were drawn on a joint business

checking account (business checking account) that Mr. Frahm

maintained for the payment of expenses for, and the receipt of

income from, his farming business. Mr. Frahm issued those checks

to pay Ms. Frahm certain wages and to reimburse her for the

premiums for Mr. Frahm’s Wellmark Plan C policy, the premiums for

Ms. Frahm’s AARP policy, the premiums for Ms. Frahm’s Conseco

policy, and the noninsurance medical expenses that Ms. Frahm paid

during that year.10

On a date not disclosed by the record prior to February 1,

2001, Mr. Frahm decided to terminate the Wellmark Plan C policy

and completed a preprinted application form entitled “Application

for Individual Health Benefit Plans Blue Care, Secure Blue, and

Secure Blue Select” (Mr. Frahm’s Wellmark Secure Blue Select

application). In that application, Mr. Frahm applied to Wellmark
- 10 -

11The parties stipulated that during 2001 Ms. Frahm paid to

Wellmark premiums totaling $8,164.20 for Mr. Frahm’s Wellmark

Secure Blue Select policy. That stipulation is clearly contrary

(continued...)

for a so-called Secure Blue Select plan to cover himself and Ms.

Frahm. In Mr. Frahm’s Wellmark Secure Blue Select application,

Mr. Frahm identified himself as “Applicant” and Ms. Frahm as

“Spouse”. The portion of Mr. Frahm’s application entitled

“Enrollment Information” stated in pertinent part: 

1. You are applying for: (check one)

 9 Blue Care 9 Secure Blue : Secure Blue 

 Select 

Do you want the optional maternity rider? (This

rider is only available at your initial

enrollment.)

9 Yes : No 

2. This request for coverage is for: (check all 

 that apply)

 : Self : Spouse 9 Child(ren)

3. This application is for: (check 

 all that apply) 

 : New Enrollment 9 Adding/Removing 

 Dependents 

4. How do you want to pay your premiums?

 9 Direct Bill. If so, on what basis?

 9 Quarterly 9 Semi-annually 

 9 Annually 

9 Automatic Account Withdrawal. If so, on what 

 basis? (Include a voided check.)

 9 Monthly-what date? 9 1st of the month or 

 9 5th of the month 

 9 Quarterly 9 Semi-annually 9 Annually 

 From:

 9 Checking 9 Savings 

5. The amount you are submitting is: $ 742.20 (Make check payable to Wellmark Blue Cross and 

 Blue Shield of Iowa.)

 

 Will your employer be paying any part of the premium for this coverage either directly or 

 through wage adjustments or other means of reimbursement? 9 Yes 9 No

 

 Will your premium payments for this coverage be deductible on your federal income tax return 

 as a trade or business expense other than the special health insurance deduction available 

 to self-employed persons? 9 Yes 9 No

Wellmark approved Mr. Frahm’s Wellmark Secure Blue Select

application and issued a health insurance policy to him (Mr.

Frahm’s Wellmark Secure Blue Select policy) that covered himself

and his spouse Ms. Frahm.

During 2001, Ms. Frahm paid the following premiums totaling

$9,281.8011 for Mr. Frahm’s Wellmark Secure Blue Select policy on
- 11 -

11(...continued)

to the facts that we have found are established by the record,

and we shall disregard it. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. at 195. The record establishes, and we have

found, that during 2001 Ms. Frahm paid directly to Wellmark

premiums totaling $9,281.80 for Mr. Frahm’s Wellmark Secure Blue

Select policy. 

the dates indicated by electronic transfers from Ms. Frahm’s

individual checking account: 

Date of Payment Amount of Payment

01/05/2001 $1,117.60

02/05/2001 1,117.60

03/05/2001 366.80

04/05/2001 742.20

05/07/2001 742.20

06/05/2001 742.20

07/05/2001 742.20

08/06/2001 742.20

09/05/2001 742.20

10/05/2001 742.20

11/05/2001 742.20

12/05/2001 742.20

During 2001, Ms. Frahm paid by a check drawn on her individual checking account premiums of $548 for Ms. Frahm’s Conseco

policy.

During 2001, Mr. Frahm, as Ms. Frahm’s employer, paid by

checks drawn on the business checking account premiums of $575.96

for a long-term care insurance policy issued in Ms. Frahm’s name

by American Fidelity Assurance Company (Ms. Frahm’s long-term

care policy). During that year, Mr. Frahm, as Ms. Frahm’s

employer, also paid by a check drawn on the business checking
- 12 -

12The noninsurance medical expenses paid by Ms. Frahm during

2001 are not at issue in this case. 

13The amount shown is the amount, rounded to the nearest

dollar, of the total (i.e., $8,712.20) of all of the premiums

shown under the heading “Major Medical/Health Insurance” in

“Section 2. Insurance Benefits” quoted below. But see infra

note 18. 

account premiums of $583.60 for a long-term care insurance policy

issued in Mr. Frahm’s name by American Fidelity Assurance Company

(Mr. Frahm’s long-term care policy).

During 2001, in addition to the premiums that Ms. Frahm paid

for Mr. Frahm’s Wellmark Secure Blue Select policy and Ms.

Frahm’s Conseco policy, Ms. Frahm paid a total of $5,076 for

certain noninsurance medical expenses.12

Ms. Frahm submitted to AgriPlan/BizPlan a request for

reimbursement of medical expenses for 2001 totaling $15,188. 

That submission consisted of a preprinted form entitled “Employee

Benefit Expense Transmittal” (Ms. Frahm’s 2001 employee benefit

expense form) that Ms. Frahm had completed. That form, which Ms.

Frahm signed as employee, stated in pertinent part: 

EMPLOYEE STATUS

Gross W-2 wage to employee during 

2001 (other than benefits): 3000.00

 

* * * * * * * 

BENEFIT TOTALS

1 Medical/Health Insurance Premium

 (from Section 2) [13]8712.00 

2 Employee’s Long Term Care Insurance 
- 13 -

14The amount shown is the amount, rounded to the nearest

dollar, of the premiums (i.e., $575.96) shown under the heading

“Long Term Care Insurance” for the “Employee” in “Section 2.

Insurance Benefits” quoted below.

15The amount shown is the amount, rounded to the nearest

dollar, of the premiums (i.e., $583.60) shown under the heading

“Long Term Care Insurance” for the “Spouse” in “Section 2.

Insurance Benefits” quoted below. 

16We have not attempted to determine whether the “Medical

expenses from 2001 plan year” of $3,409 shown under “BENEFIT

TOTALS” in Ms. Frahm’s 2001 employee benefit form, which consisted solely of noninsurance medical expenses, is the correct

total of all of the noninsurance medical expenses listed in

“Section 3 Medical Expenses” and “Section 4 Medical Expenses” of

that form. That is because those expenses are not at issue in

this case. See supra note 12. 

17We have not attempted to determine whether the “Medical

expenses from 2000 plan year” of $1,837 shown under “BENEFIT

TOTALS” in Ms. Frahm’s 2001 employee benefit form, which consisted solely of noninsurance medical expenses, is the correct

total of all of the noninsurance medical expenses listed in

“Section 5 Medical Expenses” of that form. That is because those

expenses are not at issue in this case. See supra note 5.

 Premium (from Section 2) [14]576.00

3 Spouse’s Long Term Care Insurance 

 Premium (from Section 2) [15]584.00

* * * * * * * 

7 Medical expenses from 2001 plan year 

 (from Sections 3 and 4) [16]3409.00

 * * * * * * * 

8 Medical expenses from 2000 plan year 

 (from Section 5) [17]1837.00

 * * * * * * * 

READ, SIGN AND DATE

To the best of my [Ms. Frahm’s] knowledge and belief, my

statements in this transmittal are complete and true. I am

claiming only eligible expenses incurred during the applicable

plan year(s) and for eligible plan participants. I certify that

any part or all of these expenses have not been reimbursed

previously under this or any other benefit plan and have not been
- 14 -

18We have found that during 2001 Ms. Frahm paid premiums

totaling $9,281.80 for Mr. Frahm’s Wellmark Secure Blue Select

policy. See supra note 11. The record does not disclose why Ms.

Frahm’s 2001 employee benefit expense form requested reimbursement of only $8,164.20 of the premiums paid for that policy. 

previously claimed as a tax deduction. 

* * * * * * * 

Section 2. Insurance Benefits 

* * * * * * * 

 Major Medical/Health Insurance

 

 Insured Insurance

Company

Period of

Coverage

Annual Amount

Paid

Last Date

Paid

Wellmark 

BC & BS

 total 

 months 12 [18]8164.20 12/05/01

Conseco

Health Ins

Co. (Cancer)

 total 

 months 12 548.00 04/05/01

* * * * * * * 

 Long Term Care Insurance

 Insured Insurance

Company

Period of

Coverage

Annual Amount

Paid

Last Date

Paid

 Employee American

Fidelity

Assurance Co.

 total 

 months 12 575.96 02/01/01

 Spouse American

Fidelity

Assurance Co.

 total 

 months 12 583.60 02/01/01

During 2001, Mr. Frahm, as Ms. Frahm’s employer, issued to

Ms. Frahm certain checks that were drawn on the business checking

account to pay her certain wages and to reimburse her for the

premiums for Mr. Frahm’s Wellmark Secure Blue Select policy, the

premiums for Ms. Frahm’s Conseco policy, and the noninsurance
- 15 -

19The parties stipulated that Mr. Frahm issued to Ms. Frahm

certain checks included in the record that were drawn on the

business checking account as payment of her wages for 2001 and as

reimbursement for the insurance premiums and the noninsurance

medical expenses that she paid during that year. We have found

that during 2001 Ms. Frahm paid premiums of $9,281.80, and not

the $8,164.20 that the parties stipulated she paid, for Mr.

Frahm’s Wellmark Secure Blue Select policy. See supra note 11. 

We are unable to ascertain from the record whether Mr. Frahm, as

Ms. Frahm’s employer, reimbursed Ms. Frahm for the $9,281.80 of

premiums that we have found she paid for Mr. Frahm’s Wellmark

Secure Blue Select policy during 2001 or whether he reimbursed

her for the $8,164.20 of premiums for that policy requested in

Ms. Frahm’s 2001 employee benefit expense form.

medical expenses that she paid during that year.19 

During 2002, Ms. Frahm paid the following premiums totaling

$9,529.20 for Mr. Frahm’s Wellmark Secure Blue Select policy on

the dates indicated by electronic transfers from Ms. Frahm’s

individual checking account: 

Date of Payment Amount of Payment

01/07/2002 $794.10

02/05/2002 794.10

03/05/2002 794.10

04/05/2002 794.10 

05/06/2002 794.10

06/05/2002 794.10

07/05/2002 794.10

08/05/2002 794.10

09/05/2002 794.10

10/07/2002 794.10

11/05/2002 794.10

12/05/2002 794.10

During 2002, Ms. Frahm paid by checks drawn on her individual checking account premiums of $548 for Ms. Frahm’s Conseco

policy, premiums of $575.96 for Ms. Frahm’s long-term care
- 16 -

20The noninsurance medical expenses paid by Ms. Frahm during

2002 are not at issue in this case. 

21The amount shown is the amount, rounded to the nearest

dollar, of the total (i.e., $10,077.20) of all of the premiums

shown under the heading “Major Medical/Health Insurance” in

“Section 2. Insurance Benefits” quoted below. 

policy, and premiums of $523.60 for Mr. Frahm’s long-term care

policy.

During 2002, in addition to the premiums that Ms. Frahm paid

for Mr. Frahm’s Wellmark Secure Blue Select policy, Ms. Frahm’s

Conseco policy, Ms. Frahm’s long-term care policy, and Mr.

Frahm’s long-term care policy, Ms. Frahm paid a total of $2,784

for certain noninsurance medical expenses.20 

Ms. Frahm submitted to AgriPlan/BizPlan a request for

reimbursement of medical expenses for 2002 totaling $13,961. 

That submission consisted of a preprinted form entitled “Employee

Benefit Expense Transmittal” (Ms. Frahm’s 2002 employee benefit

expense form) that Ms. Frahm had completed. That form stated in

pertinent part: 

EMPLOYEE STATUS

Gross W-2 wage to employee during 

2002 (other than benefits): 3000.00

* * * * * * * 

BENEFIT TOTALS

Medical/Health Insurance Premium

(from Section 2) 

[21]10077.00

Employee’s Long Term Care Insurance 
- 17 -

22The amount shown is the amount, rounded to the nearest

dollar, of the premiums (i.e., $575.96) shown under the heading

“Long Term Care Insurance” for the “Employee” in “Section 2.

Insurance Benefits” quoted below. 

23The amount shown is the amount, rounded to the nearest

dollar, of the premiums (i.e., $523.60) shown under the heading

“Long Term Care Insurance” for the “Spouse” in “Section 2.

Insurance Benefits” quoted below.

24The parties stipulated that the amount of “Medical expenses from Jan to Dec 2002" shown under “BENEFIT TOTALS” in Ms.

Frahm’s 2002 employee benefit expense form, which consisted

solely of noninsurance medical expenses, should have been shown

in that form as $2,784. We have not attempted to determine

whether that stipulated amount is the correct total of all of the

noninsurance medical expenses listed in “Section 3 Medical

Expenses” and “Section 4 Medical Expenses” of Ms. Frahm’s 2002

employee benefit expense form. That is because those expenses

are not at issue in this case. See supra note 20. 

Premium (from Section 2) 

[22]576.00

Spouse’s Long Term Care Insurance

 Premium (from Section 2) [23]524.00

* * * * * * * 

Medical expenses from Jan to Dec 2002 

 (from Sections 3 & 4) [24]2606.00

* * * * * * * 

Section 2. Insurance Benefits 

* * * * * * * 

 Major Medical/Health Insurance

 Insured Insurance

Company

Period of

Coverage

Annual Amount

Paid

Last Date

Paid

Wellmark 

BC & BS

 total 

 months 12 9529.20 12/05/02

Conseco

Health Ins

Co. (Cancer)

 total 

 months 12 548.00 04/08/02
- 18 -

 Long Term Care Insurance

 Insured Insurance

Company

Period of

Coverage

Annual Amount

Paid

Last Date

Paid

 Employee American

Fidelity

Assurance Co.

 total 

 months 12 575.96 02/16/02

 Spouse American

Fidelity

Assurance Co.

 total 

 months 12 523.60 02/16/02

During 2002, Mr. Frahm, as Ms. Frahm’s employer, issued to

Ms. Frahm certain checks that were drawn on the business checking

account to pay her certain wages and to reimburse her for the

premiums for Mr. Frahm’s Wellmark Secure Blue Select policy, the

premiums for Ms. Frahm’s Conseco policy, the premiums for Ms.

Frahm’s long-term care policy, the premiums for Mr. Frahm’s longterm care policy, and the noninsurance medical expenses that she

paid during that year.

Petitioners timely filed Form 1040, U.S. Individual Income

Tax Return (return), for each of their taxable years 2000 (2000

return), 2001 (2001 return), and 2002 (2002 return). Petitioners

included Schedule F as part of the 2000 return (2000 Schedule F),

the 2001 return (2001 Schedule F), and the 2002 return (2002

Schedule F). Each such Schedule F pertained to Mr. Frahm’s

farming business. Petitioners claimed, inter alia, deductions of

$10,182, $14,948, and $13,961 for expenses for “Employee benefit

programs” in the 2000 Schedule F, the 2001 Schedule F, and the

2002 Schedule F, respectively. 

On June 7, 2005, respondent issued to petitioners a notice
- 19 -

of deficiency (notice) with respect to their taxable years 2000,

2001, and 2002. In that notice, respondent, inter alia, determined to disallow the deductions of $10,182, $14,948, and $13,961

that petitioners claimed in the 2000 Schedule F, the 2001 Schedule F, and the 2002 Schedule F, respectively, for “Employee

benefit programs” because “it has not been established that these

amounts were ordinary and necessary business expenses, or were

expended for the purpose designated.” In the notice, respondent

also determined to allow petitioners deductions of $6,109,

$8,969, and $9,773 for their taxable years 2000, 2001, and 2002,

respectively, for “Self-Employed Health Insurance” because “you

are allowed the deduction for self-employed health insurance

premiums.” 

OPINION

We first address section 7491(a). The parties agree that

section 7491(a) is applicable in the instant case. The parties

disagree over whether the burden of proof has shifted to respondent under that section. We need not, and we shall not, address

that disagreement. That is because resolution of the issue

presented here does not depend on who has the burden of proof. 

We turn now to whether petitioners are entitled to deduct

under section 162(a) certain amounts in excess of the amounts

conceded by respondent for “Employee benefit programs” that

petitioners claimed in the 2000 Schedule F, the 2001 Schedule F,
- 20 -

25With respect to the $10,182 deduction that petitioners

claimed for “Employee benefit programs” in the 2000 Schedule F,

respondent concedes that petitioners are entitled to deduct

$3,928 of those expenses. That conceded amount, which has been

rounded to the nearest dollar, consists of premiums of $55.46 for

Ms. Frahm’s AARP policy, premiums of $548 for Ms. Frahm’s Conseco

policy, and all noninsurance medical expenses of $3,325. The

disallowed portion (i.e., $6,254) pertains to the premiums that

the parties stipulated were paid for Mr. Frahm’s Wellmark Plan C

policy. See supra note 4. In the notice, respondent determined

that although petitioners are not entitled to deduct in the 2000

Schedule F the insurance premiums paid during 2000 for Mr.

Frahm’s Wellmark Plan C policy, petitioners are entitled to

deduct under sec. 162(l) 60 percent of those premiums.

With respect to the $14,948 deduction that petitioners

claimed for “Employee benefit programs” in the 2001 Schedule F,

respondent concedes that petitioners are entitled to deduct

$6,200 of those expenses. That conceded amount, which has been

rounded to the nearest dollar, consists of premiums of $548 for

Ms. Frahm’s Conseco policy, premiums of $575.96 for Ms. Frahm’s

long-term care policy, and all noninsurance medical expenses of

$5,076. The disallowed portion (i.e., $8,748) pertains to the

premiums that the parties stipulated were paid for Mr. Frahm’s

Wellmark Secure Blue Select policy and Mr. Frahm’s long-term care

policy. See supra note 11. In the notice, respondent determined

that although petitioners are not entitled to deduct in the 2001

Schedule F the insurance premiums paid during 2001 for Mr.

Frahm’s Wellmark Secure Blue Select policy and Mr. Frahm’s longterm care policy, petitioners are entitled to deduct under sec.

162(l) 60 percent of those premiums.

With respect to the $13,961 deduction that petitioners

claimed for “Employee benefit programs” in the 2002 Schedule F,

respondent concedes that petitioners are entitled to deduct

$3,908 of those expenses. That conceded amount, which has been

rounded to the nearest dollar, consists of premiums of $548 for

Ms. Frahm’s Conseco policy, premiums of $575.96 for Ms. Frahm’s

long-term care policy, and all noninsurance medical expenses of

$2,784. The disallowed portion (i.e., $10,053) pertains to the

premiums paid for Mr. Frahm’s Wellmark Secure Blue Select policy

and Mr. Frahm’s long-term care policy. In the notice, respondent

determined that although petitioners are not entitled to deduct

in the 2002 Schedule F the insurance premiums paid during 2002

(continued...)

and the 2002 Schedule F, respectively.25 A taxpayer, including
- 21 -

25(...continued)

for Mr. Frahm’s Wellmark Secure Blue Select policy and Mr.

Frahm’s long-term care policy, petitioners are entitled to deduct

under sec. 162(l) 70 percent of those premiums.

26See Albers v. Commissioner, T.C. Memo. 2007-144; Francis

v. Commissioner, T.C. Memo. 2007-33.

27As applicable here, sec. 162(l)(1) provides that a taxpayer is entitled to deduct 60 percent of any amount that such

taxpayer paid or incurred during 2000 and 2001 and 70 percent of

any amount that such taxpayer paid or incurred during 2002 for

insurance that constituted medical care for such taxpayer, such

taxpayer’s spouse, and such taxpayer’s children. Sec. 162(l)

provides in pertinent part:

SEC. 162. TRADE OR BUSINESS EXPENSES.

* * * * * * *

(l) Special Rules for Health Insurance Costs of

Self-Employed Individuals.--

(1) Allowance of deduction.-- 

(A) In general.–-In the case of an indi-

(continued...)

the owner of an unincorporated business, is entitled to deduct

all the ordinary and necessary expenses paid or incurred during

the taxable year in carrying on a trade or business, sec. 162(a),

including any amount paid to an employee pursuant to an employee

benefit plan for an expense that such employee pays or incurs,

sec. 162(a)(1); sec. 1.162-10, Income Tax Regs.26 However, a

taxpayer who owns an unincorporated business is not entitled to

deduct health insurance costs that he pays or incurs for himself,

his spouse, and his dependents except as provided in section

162(l).27
- 22 -

27(...continued)

vidual who is an employee within the meaning

of section 401(c)(1), there shall be allowed

as a deduction under this section an amount

equal to the applicable percentage of the

amount paid during the taxable year for insurance which constitutes medical care for

the taxpayer, his spouse, and dependents.

(B) Applicable percentage.–-For purposes

of subparagraph (A), the applicable percentage shall be determined under the following

table:

For taxable years beginning The applicable

in calendar year-- percentage is--

1999 through 2001 . .. . . . .. . . .60

2002 . . . . . . . . .. . . . . . . .70

The legislative history under sec. 162(l) establishes that

that statute was enacted “to reduce the disparity between the tax

treatment of owners of incorporated and unincorporated businesses.” S. Rept. 104-16, at 11 (1995); see also H. Rept. 104-

32, at 7-8 (1995).

28See supra note 25.

It is petitioners’ position that they are entitled for each

of the years at issue to deduct under section 162(a) as ordinary

and necessary business expenses the total amount of insurance

premiums that remain at issue.28 In support of their position,

petitioners argue that Mr. Frahm, as Ms. Frahm’s employer, paid

such total amount to Ms. Frahm, directly (i.e., reimbursed Ms.

Frahm for the insurance premiums that she paid to the insurers in

question) or indirectly (i.e., paid the insurance premiums to the

insurer in question), pursuant to a health plan within the

meaning of section 105(b).
- 23 -

It is respondent’s position that the insurance premiums that

remain at issue are personal expenses and therefore are not

deductible as ordinary and necessary business expenses under

section 162(a). In support of respondent’s position, respondent

argues:

Employee Benefit Plan expenses claimed on the Schedule

F are deductible as ordinary and necessary expenses

paid pursuant to an employee benefit plan if the medical and insurance expenses are attributable to the

employee.

* * * * * * *

Respondent does not dispute the existence of an

agreement between Ralph Frahm, as employer, and Erika

Frahm, as employee, that provided that the employer

would provide health insurance benefits to the employee. Respondent does not dispute that Erika Frahm

was an employee of Ralph Frahm. Respondent does not

dispute that Erika Frahm worked sufficient hours at a

sufficient wage rate to qualify for health insurance

benefits. Respondent does dispute that the actual

health insurance policy purchased by petitioners, in

Ralph Frahm’s name, which provided coverage for Erika

Frahm, was an ordinary and necessary business expense.

* * * Petitioners’ expenses bore no relation to

Ralph Frahm’s farming business. His only employee

received the health benefits giving rise to the disputed expenses by virtue of her marital relationship

with Ralph Frahm, and not by virtue of the employment

relationship.

* * * The family relationship - not the employment

relationship - was the means by which the health insurance coverage reached Erika Frahm. Erika Frahm would

not have received the benefit of health insurance

coverage under the policy purchased if she had not been

Ralph Frahm’s wife. But, she would have received the

benefit as his wife regardless of whether she was Ralph

Frahm’s employee.

* * * * * * *
- 24 -

Ralph Frahm provided benefits to the wrong person

when petitioners bought a health insurance policy with

Ralph, instead of with his employee, Erika, as the

primary insured. Petitioners fail to meet the requirements of I.R.C. § 162(a). Petitioners claim the disputed expense as a business expense in the nature of

compensation for services rendered. The health insurance policy was taken out in Ralph Frahm’s name. While

his wife benefited incidentally from this, as his

covered spouse under the policy, it can hardly be said

that she was compensated by petitioners buying insurance for Ralph Frahm and his dependents. * * * [Reproduced literally.]

As we understand respondent’s position, respondent is

arguing that if an employer maintains a health plan described in

section 105 that covers one or more employees, such employee(s)’

spouse(s), and such employee(s)’ dependents, only the payments

that the employer makes for the medical expenses of the employee(s), and not the payments that the employer makes for the

medical expenses of the employee(s)’ spouse(s) and dependents,

constitute payments made pursuant to such a plan. Consequently,

according to respondent, any payment that the employer makes for

the medical expenses of the employee(s)’ spouse(s) and dependents

are not payments made to such employee(s) pursuant to an employee

benefit plan within the meaning of section 1.162-10, Income Tax

Regs. We disagree.

Section 105(b) provides in pertinent part:
- 25 -

29Sec. 105(a) provides:

(a) Amounts Attributable to Employer

Contributions.--Except as otherwise provided in this

section, amounts received by an employee through accident or health insurance for personal injuries or

sickness shall be included in gross income to the

extent such amounts (1) are attributable to contributions by the employer which were not includible in the

gross income of the employee, or (2) are paid by the

employer.

30For purposes of sec. 105(b), expenses for medical care

include amounts paid as premiums for insurance covering medical

care referred to in sec. 213(d)(1)(A) and (B) and for any qualified long-term care insurance contract as defined in sec.

7702B(b). Sec. 213(d)(1)(D). 

SEC. 105. AMOUNTS RECEIVED UNDER ACCIDENT AND HEALTH 

 PLANS. 

* * * * * * * 

 (b) Amounts Expended for Medical Care.–-

* * * gross income does not include amounts

referred to in subsection (a)[29] if such

amounts are paid, directly or indirectly, to

the taxpayer to reimburse the taxpayer for

expenses incurred by him for the medical care

(as defined in section 213(d)) of the taxpayer, his spouse, and his dependents 

* * *.[30] [Emphasis added.]

Section 105(b) excludes from gross income amounts referred to in

section 105(a) that an employer pays, directly or indirectly, to

an employee in order to reimburse the employee for expenses for

the medical care, as defined in section 213(d), of not only the

employee, but also the employee’s spouse and dependents. 

During the years at issue, pursuant to the AgriPlan/AgriBiz

medical reimbursement plan, Mr. Frahm, as Ms. Frahm’s employer,
- 26 -

31Respondent does not dispute that the AgriPlan/AgriBiz

medical reimbursement plan constitutes a health plan described in

sec. 105. 

32See supra note 25. 

paid, directly or indirectly, to Ms. Frahm certain amounts for

premiums for various insurance policies covering herself, her

spouse Mr. Frahm, and/or both of them.31 Respondent concedes the

deductibility under section 162(a) of the amounts of such premiums that Mr. Frahm, as Ms. Frahm’s employer, paid, directly or

indirectly, to Ms. Frahm for the insurance policies issued in her

name and covering only her. Respondent disputes only the deductibility under section 162(a) of the amounts of such premiums that

Mr. Frahm, as Ms. Frahm’s employer, paid, directly or indirectly,

to Ms. Frahm for the insurance policies issued in his name and

covering only him or covering him and her.32 

We consider first the respective amounts that Mr. Frahm, as

Ms. Frahm’s employer, paid during the years at issue directly to

Ms. Frahm in order to reimburse her for the premiums that she

paid during those years for the policies issued in her spouse’s

(i.e., Mr. Frahm’s) name. On the record before us, we find that,

pursuant to the AgriPlan/AgriBiz medical reimbursement plan, Mr.

Frahm, as Ms. Frahm’s employer, paid directly to Ms. Frahm

certain amounts (1) during 2000 in order to reimburse her for the

premiums that she paid during that year for Mr. Frahm’s Wellmark

Plan C policy, (2) during 2001 in order to reimburse her for the
- 27 -

33The Court directs the parties to determine as part of the

computations under Rule 155 the respective amounts that Mr.

Frahm, as Ms. Frahm’s employer, paid directly to Ms. Frahm during

2000 and 2001 in order to reimburse her for the premiums that she

paid during those respective years for Mr. Frahm’s Wellmark Plan

C policy and Mr. Frahm’s Wellmark Secure Blue Select policy. See

supra notes 10 and 19.

34See supra note 33.

premiums that she paid during that year for Mr. Frahm’s Wellmark

Secure Blue Select policy, and (3) during 2002 in order to

reimburse her for the premiums that she paid during that year for

Mr. Frahm’s Wellmark Secure Blue Select policy and Mr. Frahm’s

long-term care policy.33 See sec. 105(b). On that record, we

further find that the respective amounts that Mr. Frahm, as Ms.

Frahm’s employer, paid pursuant to the AgriPlan/AgriBiz medical

reimbursement plan directly to Ms. Frahm (1) during 2000 in order

to reimburse her for the premiums that she paid for Mr. Frahm’s

Wellmark Plan C policy, (2) during 2001 in order to reimburse her

for the premiums that she paid for Mr. Frahm’s Wellmark Secure

Blue Select policy, and (3) during 2002 in order to reimburse her

for the premiums that she paid for Mr. Frahm’s Wellmark Secure

Blue Select policy and Mr. Frahm’s long-term care policy constitute ordinary and necessary business expenses of Mr. Frahm’s

farming business within the meaning of section 162(a).34 See

sec. 162(a)(1); sec. 1.162-10, Income Tax Regs. 

We next consider the premiums that Mr. Frahm, as Ms. Frahm’s

employer, paid during 2001 to American Fidelity Assurance Company
- 28 -

for Mr. Frahm’s long-term care policy. Section 1.105-2, Income

Tax Regs., provides: 

If the taxpayer incurs an obligation for medical care,

payment to the obligee in discharge of such obligation

shall constitute indirect payment to the taxpayer as

reimbursement for medical care. Similarly, payment to

or on behalf of the taxpayer’s spouse or dependents

shall constitute indirect payment to the taxpayer.

During 2001, pursuant to the AgriPlan/AgriBiz medical

reimbursement plan, Mr. Frahm, as Ms. Frahm’s employer, made a

payment to the insurer on behalf of Ms. Frahm’s spouse (i.e., Mr.

Frahm) for the premiums for Mr. Frahm’s long-term care policy. 

On the record before us, we find that Mr. Frahm, as Ms. Frahm’s

employer, paid pursuant to that plan indirectly to Ms. Frahm the

amount of those premiums for the medical care of her spouse. See

sec. 105(b); sec. 1.105-2, Income Tax Regs. On that record, we

further find that the amount that Mr. Frahm, as Ms. Frahm’s

employer, paid pursuant to the AgriPlan/AgriBiz medical reimbursement plan indirectly to Ms. Frahm during 2001 for the

premiums for Mr. Frahm’s long-term care policy constitutes an

ordinary and necessary business expense of Mr. Frahm’s farming

business within the meaning of section 162(a). See sec.

162(a)(1); sec. 1.162-10, Income Tax Regs.

Based upon our examination of the entire record before us,

we find that petitioners are entitled to deduct under section
- 29 -

35See supra note 33.

36Cf. Albers v. Commissioner, T.C. Memo. 2007-144. Unlike

the instant case, in Albers, the fully stipulated record did not

establish that Darwin J. Albers (Mr. Albers), as the employer of

Peggy L. Albers (Ms. Albers), paid, directly or indirectly, to

Ms. Albers pursuant to the AgriPlan/AgriBiz medical reimbursement

plan involved in that case the medical expenses at issue there in

order to reimburse her for expenses incurred or paid for the

medical care of herself, her spouse Mr. Albers, and/or her

dependent children. Nor did the fully stipulated record in that

case establish why the payment by the taxpayers of the claimed

medical expenses qualified those expenses as ordinary and necessary expenses paid or incurred by Mr. Albers in carrying on his

farming business. 

37In light of our findings and holdings herein, we reject

respondent’s argument on brief and determinations in the notice

that the insurance premiums at issue are subject to sec. 162(l). 

162(a) certain amounts35 in excess of the amounts conceded by

respondent for “Employee benefit programs” that petitioners

claimed in the 2000 Schedule F, the 2001 Schedule F, and the 2002

Schedule F, respectively.36

We have considered all of the parties’ contentions and

arguments that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.37

To reflect the foregoing and the concessions of respondent, 

Decision will be entered under

Rule 155.