Gerald Kramer
The AZ CPA
5350 N 16th St
Phoenix, AZ 85016
(602) 264-9331
Fax: (602) 279-1766
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OCTOBER 2003
Drugs Paid through a Flexible Spending Account:
An employer's flexible spending account (FSA) reimburses employee's
medical expenses not covered by insurance. An employee buys
nonprescription medication to treat personal injuries or sickness, as
well as nonprescription dietary supplements (e.g., vitamins) for
general health purposes. The employee's expenses for everything but
dietary supplements are for medical care, so their reimbursement
would be excludable under IRC Sec. 1059(b). The statutory exclusion
for reimbursements of health expenses is broader than the itemized
deduction for medical expenses. So, employer reimbursements of
employee's nonprescription drugs, including reimbursements through
health FSA's and health reimbursement arrangements (HRA's), are
excludable the same as other employer reimbursements of employee
health expenses. Rev. Rul. 2003-102, 2003-38 IRB.
Teacher's Should Save Receipt's for Educator's Deduction:
As the new school year begins, the IRS reminds teachers and other
educators to save receipts for purchases of books and classroom
supplies. { Editor's Note: The IRS suggests that educators keep
their records in a folder or envelope, noting the date, amount and
purpose of each purchase. } Eligible persons can subtract up to $
250 of qualified expenses when figuring their AGI for 2003. To be
eligible, a person must work at least 900 hours during a school year
as a teacher, instructor, counselor, principal, or aide. This is the
last year for this deduction-last year's Job Creation and Worker
Assistance Act put in a place for 2002 and 2003 only. News Release
IR - 2003-106.
Income Tax- Engine Repair Expenses Deductible:
This is an excellent case to define the difference between repair and
capitalization. In auditing Federal Express's 1993 and 1994 returns,
the IRS proposed the capitalization of engine shop visits (ESV's) and
airframe heavy maintenance activity. In concluding that the ESV costs
were deductible in full, a Tennessee District Court noted that the
ESV's did not (1) adapt any engine or auxiliary power unit (APU) to a
new or different use; (2) materially increase the value of FedEx's
aircraft, engines, or APU's or (3) appreciably prolong the lives of
FedEx's aircraft, engines or APU's, but merely maintained them in
proper working order during their expected useful lives. { FedEx
Corp. v. U. S. AFTR 2d 2003-XXXX (D. C. W. Tenn. }.
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