CCA 200623001: Sole proprietor claims health insurance deduction on Form 1040

Plain-English summary

Chief Counsel clarified where a sole proprietor claims the self-employed health insurance deduction. The advice says that section 162(l) allows the deduction, subject to its limits, even when the insurance policy is in the individual's name. Because the deduction does not reduce net earnings from self-employment, the individual claims it as an adjustment to gross income on Form 1040. It cannot be deducted on Schedule C.

Ruling snapshot

• Question: May a sole proprietor deduct health insurance costs on Schedule C?
• Outcome: Advice given; claim the section 162(l) deduction on Form 1040, not Schedule C.
• Key authorities: IRC §§ 162(l), 1402(a).

Full text (IRS public release)

Office of Chief Counsel

Memorandum
Internal Revenue Service

Number: 200623001
Release Date: 6/9/2006
CC:TEGE:EB:HW:BPie
FILEF-111320-06

UILC: 162.35-00

date: March 03, 2006
to: Associate Area Counsel, CC:SB/SE:SF

from: Branch Chief, CC:TEGE:EB:HW

subject: Health Insurance Deduction for Self-Employed Individuals Under I.R.C. § 162(l)

This Chief Counsel Advice responds to your request for assistance dated February 23, 2006 regarding I.R.C. ' 162(l). In accordance with I.R.C. ' 6110(k)(3), this advice may not be used or cited as precedent.

In our advice to your office dated May 17, 2005, we concluded that a self-employed individual who is a sole proprietor may deduct, pursuant to § 162(l) of the Code and subject to the limitations in § 162(l), insurance costs for the medical care of the sole proprietor and his or her spouse and dependents when the health insurance policy purchased by the sole proprietor is issued in his or her individual name rather than in the name of the sole proprietor’s trade or business. You have requested clarification regarding whether sole proprietors may deduct health insurance costs on Schedule C, Profit or Loss From Business.

Under § 162(l)(4), the deduction shall not be taken into account in determining an individual’s net earnings from self-employment (within the meaning of § 1402(a)) for purposes of Chapter 2. Accordingly, the deduction under § 162(l) must be claimed as an adjustment to gross income on the face of Form 1040. The current 2005 Form 1040 provides for the deduction on Line 29. Therefore, a self-employed individual may not deduct the costs of health insurance on Schedule C.

CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS

None

This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views.

Please call (202) 622-6080 if you have any further questions.

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Harry Beker

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