AICPA comments on deductibility of health insurance premiums, controlled foreign corporation look-through provision.A proposed Revenue Ruling the AICPA AICPA See American Institute of Certified Public Accountants (AICPA). developed was recently sent to the Internal Revenue Service for consideration. The proposed ruling would provide clarifying guidance regarding the deductibility of health insurance premiums covering S corporation shareholders. In May 2006, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. published Headliner head·lin·er n. A performer who receives prominent billing; a star. Noun 1. headliner - a performer who receives prominent billing star Volume 163 on its Web site indicating that medical insurance policies must be held in the name of a corporation (rather than the owners) for S corporation shareholders to receive the deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for health insurance premiums for the self-employed. The AICPA does not agree with this policy and, in response, is proposing that the IRS clarify and modify such guidance to 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 simply because certain state laws require group policies to cover more than one employee (and therefore many corporations are not eligible for group policies), this should not prevent shareholders in small organizations from deducting premiums above-the-line. How large an impact the IRS's May Headliner may have on individuals in your state may depend on your state's insurance laws. Two states--California and Florida--reviewed the Revenue Ruling in draft form and agreed with it, noting that their members had raised concerns similar to those the AICPA expressed. In a separate action, the AICPA submitted comments to the IRS and Department of the Treasury urging that guidance be provided concerning the new Controlled Foreign Corporation Controlled foreign corporation (CFC) A foreign corporation whose voting stock is more than 50% owned by US stockholders, each of whom owns at least 10% of the voting power. (CFC CFC See: Controlled foreign corporation ) look-through provision of the Tax Increase Prevention and Reconciliation Act of 2005. The Institute noted 11 areas where guidance is particularly necessary and emphasized that guidance is especially important because the CFC provision is effective for only a short time. (It applies for taxable years Taxable year The 12-month period an individual uses to report income for income tax purposes. For most individuals, their tax year is the calendar year. of foreign corporations beginning after Dec. 31, 2005, and before Jan. 1, 2009.) |
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