What I am, how I am paid, and what is not settled.

What this practice is, and is not

Section 125 Advisory Group is a one-person practice operated by Nick Gavin in Cincinnati, Ohio. It provides business development and introduction services only.

I introduce employers to third-party providers that design and administer Section 125 cafeteria plans and Section 105(b) self-insured medical expense reimbursement plans. Any plan is contracted directly between the employer and that provider, on the provider's paper.

I am not the plan administrator. I do not administer any plan, hold or handle plan funds, sign plan agreements with employers, adjudicate claims, prepare tax returns, or make tax determinations.

I am not an attorney, a certified public accountant, an enrolled agent, a licensed insurance producer, or a registered investment adviser. Nothing I provide is legal, tax, accounting, insurance, or investment advice. I do not sell, solicit, or negotiate insurance, and nothing on this site is an offer of insurance.

How I am compensated

The tax position is contested. Here is the plain version.

IRC section 105(b) excludes from an employee's income amounts paid to reimburse expenses incurred for medical care as defined in section 213(d).

Treasury Regulation section 1.105-2 provides that section 105(b) applies only to amounts paid specifically to reimburse incurred expenses, and does not apply to amounts an employee would be entitled to receive irrespective of whether medical expenses are incurred. The same regulation allows reimbursement without proof of the amount of an incurred expense, which is a narrower allowance than it is sometimes described as.

Relevant authorities an employer's advisors would want to read include Treas. Reg. 1.105-2, Rev. Rul. 2002-3, Rev. Rul. 2002-80, and IRS Chief Counsel Advice Memorandum 202323006. A 2023 proposed rule addressing the taxation of fixed payments and section 105(b) substantiation was deferred rather than finalized or withdrawn, and the IRS stated that the deferral did not indicate agreement with the positions taken by commenters.

What that means practically: an employer adopting a plan of this type should assume the IRS may challenge it, and should form its own view, through its own counsel and CPA reading the actual plan documents, before proceeding. Any statement about how a specific plan handles substantiation comes from that plan's provider and should be verified against the plan language, not against a summary on a website.

Questions worth asking any provider, including mine

• Under the plan as written, must an employee incur a medical expense to receive a reimbursement?
• How does the plan address Treas. Reg. 1.105-2 and Rev. Rul. 2002-3 specifically?
• What substantiation does the plan require, from whom, and how is it retained?
• Is there a written opinion from named outside counsel, and may we read it in full?
• If the IRS assesses tax, interest, and penalties, who bears them, and what precisely does any audit-protection coverage cover? Who is the named insured?
• How is every party in the chain compensated, and by whom?

No reliance

Figures, savings estimates, and plan descriptions on this site or in any document I send are provided by the plan provider for general information. They are not guarantees. Tax outcomes depend on each employer's specific facts and on how a plan is actually administered, and the applicable law is subject to change and to differing interpretation and challenge by the IRS.

You should obtain and rely on the independent advice of your own attorney and CPA before adopting any plan. I do not warrant any tax result, and you are not relying on me for any assessment of tax treatment.

Questions

Ask me anything here directly: nick.gavin@simerpadvisors.org or (513) 601-8963. If I do not know the answer I will say so rather than guess.