The American Institute of CPAs has asked the Internal Revenue Service to clarify the deductibility of health insurance premiums covering S corporation shareholders.

The institute sent a proposed ruling to the agency, suggesting that guidance originally issued in May shift the emphasis from the titling of policies to the payor of the premiums, whether payment is direct or indirect. The AICPA’s proposal also makes clear that because certain state laws require group policies to cover more than one employee -- and therefore, many corporations not eligible for group policies --  this should not prevent shareholders in small organizations from deducting premiums above-the-line.

The May IRS Headliner Volume 163 indicated that medical insurance policies must be held in the name of a corporation, as opposed to owners, in order for the S corporation shareholders to receive the deduction for health insurance premiums for the self-employed.

The AICPA has been in contact with the IRS as it drafted the proposal, which was reviewed by the institute’s S Corp Taxation Technical Resource Panel and approved by the AICPA’s Tax Executive Committee.  A draft version of the ruling was also sent to the California Society of CPAs, the Florida Institute of CPAs, and the American Association of Attorney-CPAs upon requests.  Each of those organizations approved the ruling, noting similar concerns among their constituencies.


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