SEC. 120. AMOUNTS RECEIVED
UNDER QUALIFIED GROUP LEGAL SERVICES PLANS.
120(a) EXCLUSION BY EMPLOYEE FOR CONTRIBUTIONS AND LEGAL
SERVICES PROVIDED BY EMPLOYER. --Gross income of an
employee, his spouse, or his dependents, does not include --
120(a)(1) amounts contributed
by an employer on behalf of an employee, his spouse, or his
dependent under a qualified group legal services plan (as defined
in subsection (b)); or
120(a)(2) the value of legal
service provided, or amounts paid for legal services, under
a qualified group legal services plan (as defined in subsection
(b)) to, or with respect to, an employee, his spouse, or his
No exclusion shall be allowed under this section
with respect to an individual for any taxable year to the extent
that the value of insurance (whether through an insurer or self-insurance)
against legal costs incurred by the individual (or his spouse
or dependents) provided under a qualified group legal services
plan exceeds $70.
120(b) QUALIFIED GROUP LEGAL SERVICES
PLAN. --For purposes of this section, a qualified group
legal services plan is a separate written plan of an employer
for the exclusive benefit of his employees or their spouses
or dependents to provide such employees, spouse, or dependents
with specified benefits consisting of personal legal services
through prepayment of, or provision in advance for, legal fees
in whole or in part by the employer, if the plan meets the requirements
of subsection (c).
120(c) REQUIREMENTS. --
120(c)(1) DISCRIMINATION. --The
contributions or benefits provided under the plan shall not
discriminate in favor of employees who are highly compensated
employees (within the meaning of section 414(q)).
120(c)(2) ELIGIBILITY. --The
plan shall benefit employees who qualify under a classification
set up by the employer and found by the Secretary not to be
discriminatory in favor of employees who are described in paragraph
(1). For purposes of this paragraph, there shall be excluded
from consideration employees not included in the plan who are
included in a unit of employees covered by an agreement which
the Secretary of Labor finds to be a collective bargaining agreement
between employee representatives and one or more employers,
if there is evidence that group legal services plan benefits
were the subject of good faith bargaining between such employee
representatives and such employer or employers.
120(c)(3) CONTRIBUTION LIMITATION.
--Not more than 25 percent of the amounts contributed under
the plan during the year may be provided for the class of individuals
who are shareholders or owners (or their spouses or dependents),
each of whom (on any day of the year) owns more than 5 percent
of the stock or of the capital or profits interest in the employer.
120(c)(4) NOTIFICATION. --The
plan shall give notice to the Secretary, in such manner as the
Secretary may by regulations prescribe, that it is applying
for recognition of the status of a qualified group legal services
120(c)(5) CONTRIBUTIONS. --Amounts
contributed under the plan shall be paid only (A) to insurance
companies, or to organizations or persons that provide personal
legal services, or indemnification against the cost of personal
legal services, in exchange for a prepayment or payment of a
premium, (B) to organizations or trusts described in section
501(c)(20), (C) to organizations described in section 501(c)
which are permitted by that section to receive payments from
an employer for support of one or more qualified group legal
services plan or plans, except that such organizations shall
pay or credit the contribution to an organization or trust described
in section 501(c)(20), (D) as prepayments to providers of legal
services under the plan, or (E) a combination of the above.
120(d) OTHER DEFINITIONS AND SPECIAL
RULES. --For purposes of this section --
120(d)(1) EMPLOYEE. --The term
"employee" includes, for any year, an individual who
is an employee within the meaning of section 401(c)(1) (relating
to self-employed individuals).
120(d)(2) EMPLOYER. --An individual
who owns the entire interest in an unincorporated trade or business
shall be treated as his own employer. A partnership shall be
treated as the employer of each partner who is an employee within
the meaning of paragraph (1).
120(d)(3) ALLOCATIONS. --Allocations
of amounts contributed under the plan shall be made in accordance
with regulations prescribed by the Secretary and shall take
into account the expected relative utilization of benefits to
be provided from such contributions or plan assets and the manner
in which any premium or other charge was developed.
120(d)(4) DEPENDENT. --The
term "dependent" has the meaning given to it by section
152 (determined without regard to subsections (b)(1), (b)(2),
and (d)(1)(B) thereof).
120(d)(5) EXCLUSIVE BENEFIT.
--In the case of a plan to which contributions are made by more
than one employer, in determining whether the plan is for the
exclusive benefit of an employer's employees or their spouses
or dependents, the employees of any employer who maintains the
plan shall be considered to be the employees of each employer
who maintains the plan.
120(d)(6) ATTRIBUTION RULES.
--For purposes of this section --
120(d)(6)(A) ownership of stock
in a corporation shall be determined in accordance with the
rules provided under subsections (d) and (e) of section 1563
(without regard to section 1563(e)(3)(C)), and
120(d)(6)(B) the interest of
an employee in a trade or business which is not incorporated
shall be determined in accordance with regulations prescribed
by the Secretary, which shall be based on principles similar
to the principles which apply in the case of subparagraph (A).
120(d)(7) TIME OF NOTICE TO SECRETARY.
--A plan shall not be a qualified group legal services plan
for any period prior to the time notification was provided to
the Secretary in accordance with subsection (c)(4), if such
notice is given after the time prescribed by the Secretary by
regulations for giving such notice.
120(e) TERMINATION. --This
section and section 501(c)(20) shall not apply to taxable years
beginning after June 30, 1992.
120(f) CROSS REFERENCE. --
For reporting and recordkeeping requirements,
see section 6039D.
Presented by Alvin Brown and Associates,
tax attorney, formerly with the Office of the Chief Counsel of the
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com- firstname.lastname@example.org -
712-7690 - (703) 425-1400