26 U.S. Code § 120 - Amounts received under qualified group legal services plans

(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—
(1) amounts contributed by an employer on behalf of an employee, his spouse, or his dependents under a qualified group legal services plan (as defined in subsection (b)); or
(2) the value of legal services 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 dependents.
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.
(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, spouses, 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).
(c) Requirements
(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)).
(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.
(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.
(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 plan.
(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.
(d) Other definitions and special rules
For purposes of this section—
(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).
(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).
(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.
(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).
(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.
(6) Attribution rules
For purposes of this section—
(A) ownership of stock in a corporation shall be determined in accordance with the rules provided under subsections (d) and (e) ofsection 1563 (without regard to section 1563 (e)(3)(C)), and
(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).
(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.
(e) Termination
This section and section 501 (c)(20) shall not apply to taxable years beginning after June 30, 1992.
(f) Cross reference
For reporting and recordkeeping requirements, see section 6039D.

Source

(Added Pub. L. 94–455, title XXI, § 2134(a),Oct. 4, 1976, 90 Stat. 1926; amended Pub. L. 97–34, title VIII, § 802(a),Aug. 13, 1981, 95 Stat. 349; Pub. L. 97–448, title I, § 108(a),Jan. 12, 1983, 96 Stat. 2391; Pub. L. 98–612, § 1(a), (b)(3)(A),Oct. 31, 1984, 98 Stat. 3180, 3181; Pub. L. 99–514, title XI, §§ 1114(b)(3), 1151(c)(3), (g)(1), 1162(b),Oct. 22, 1986, 100 Stat. 2450, 2503, 2506, 2510; Pub. L. 100–647, title I, § 1011B(a)(31)(B), title IV, § 4002(a), (b)(1),Nov. 10, 1988, 102 Stat. 3488, 3643; Pub. L. 101–140, title II, § 203(a)(1), (2),Nov. 8, 1989, 103 Stat. 830; Pub. L. 101–239, title VII, § 7102(a)(1),Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101–508, title XI, § 11404(a),Nov. 5, 1990, 104 Stat. 1388–473; Pub. L. 102–227, title I, § 104(a)(1),Dec. 11, 1991, 105 Stat. 1687; Pub. L. 108–311, title II, § 207(10),Oct. 4, 2004, 118 Stat. 1177.)
Prior Provisions

A prior section 120, act Aug. 16, 1954, ch. 736, 68A Stat. 39, related to statutory subsistence allowance received by police, prior to repeal by Pub. L. 85–866, title I, § 3(a), (c),Sept. 2, 1958, 72 Stat. 1607, effective with respect to taxable years ending after Sept. 30, 1958, but only with respect to amounts received as a statutory subsistence allowance for any day after Sept. 30, 1958.
Amendments

2004—Subsec. (d)(4). Pub. L. 108–311inserted “(determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof)” after “section 152”.
1991—Subsec. (e). Pub. L. 102–227substituted “June 30, 1992” for “December 31, 1991”.
1990—Subsec. (e). Pub. L. 101–508substituted “December 31, 1991” for “September 30, 1990”.
1989—Subsec. (b). Pub. L. 101–140, § 203(a)(1), amended subsec. (b) to read as if amendments by Pub. L. 99–514, § 1151(c)(3), had not been enacted, see 1986 Amendment note below.
Subsec. (c)(2). Pub. L. 101–140, § 203(a)(2), amended par. (2) to read as if amendments by Pub. L. 100–647, § 1011B(a)(31)(B), had not been enacted, see 1988 Amendment note below.
Pub. L. 101–140, § 203(a)(1), amended par. (2) to read as if amendments by Pub. L. 99–514, § 1151(g)(1), had not been enacted, see 1986 Amendment note below.
Subsec. (e). Pub. L. 101–239substituted “taxable years beginning after September 30, 1990” for “taxable years ending after December 31, 1988”.
1988—Subsec. (a). Pub. L. 100–647, § 4002(b)(1), inserted at end “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.”
Subsec. (c)(2). Pub. L. 100–647, § 1011B(a)(31)(B), substituted “there shall” for “there may” and “who are” for “who may be”.
Subsec. (e). Pub. L. 100–647, § 4002(a), substituted “1988” for “1987”.
1986—Subsec. (b). Pub. L. 99–514, § 1151(c)(3), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: “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, spouses, 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).”
Subsec. (c)(1). Pub. L. 99–514, § 1114(b)(3)(A), substituted “highly compensated employees (within the meaning of section 414 (q))” for “officers, shareholders, self-employed individuals, or highly compensated”.
Subsec. (c)(2). Pub. L. 99–514, § 1151(g)(1), substituted “For purposes of this paragraph, there may be excluded from consideration employees who may be excluded from consideration under section 89 (h).” for “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.”
Subsec. (d)(1). Pub. L. 99–514, § 1114(b)(3)(B), struck out reference to self-employed individuals in heading, and substituted “The” for “The term ‘self-employed individual’ means, and the” in text.
Subsec. (e). Pub. L. 99–514, § 1162(b), substituted “December 31, 1987” for “December 31, 1985”.
1984—Subsec. (e). Pub. L. 98–612, § 1(a), substituted “December 31, 1985” for “December 31, 1984”.
Subsec. (f). Pub. L. 98–612, § 1(b)(3)(A), added subsec. (f).
1983—Subsec. (e). Pub. L. 97–448substituted “This section and section 501 (c)(20) shall not apply” for “This section shall not apply”.
1981—Subsec. (e). Pub. L. 97–34added subsec. (e).
Effective Date of 2004 Amendment

Amendment by Pub. L. 108–311applicable to taxable years beginning after Dec. 31, 2004, see section 208 ofPub. L. 108–311, set out as a note under section 2 of this title.
Effective Date of 1991 Amendment

Pub. L. 102–227, title I, § 104(b),Dec. 11, 1991, 105 Stat. 1687, provided that: “The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 1991.”
Effective Date of 1990 Amendment

Pub. L. 101–508, title XI, § 11404(c),Nov. 5, 1990, 104 Stat. 1388–473, provided that: “The amendments made by this section [amending this section and repealing provisions set out below] shall apply to taxable years beginning after December 31, 1989.”
Effective Date of 1989 Amendment

Pub. L. 101–239, title VII, § 7102(b),Dec. 19, 1989, 103 Stat. 2305, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years ending after December 31, 1988.”
Amendment by Pub. L. 101–140effective as if included in section 1151 ofPub. L. 99–514, see section 203(c) ofPub. L. 101–140, set out as a note under section 79 of this title.
Effective Date of 1988 Amendment

Amendment by section 1011B(a)(31)(B) ofPub. L. 100–647effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) ofPub. L. 100–647, set out as a note under section 1 of this title.
Pub. L. 100–647, title IV, § 4002(c),Nov. 10, 1988, 102 Stat. 3643, provided that: “The amendments made by this section [amending this section and section 125 of this title] shall apply to taxable years ending after December 31, 1987.”
Effective Date of 1986 Amendment

Amendment by section 1114(b)(3) ofPub. L. 99–514applicable to years beginning after Dec. 31, 1987, see section 1114(c)(2) ofPub. L. 99–514, set out as a note under section 414 of this title.
Amendment by section 1151(c)(3), (g)(1) ofPub. L. 99–514applicable, with certain qualifications and exceptions, to years beginning after Dec. 31, 1988, see section 1151(k) ofPub. L. 99–514, as amended, set out as a note under section 79 of this title.
Pub. L. 99–514, title XI, § 1162(c),Oct. 22, 1986, 100 Stat. 2510, provided that:
“(1) Subsection (a).—The amendments made by subsection (a) [amending section 127 of this title] shall apply to taxable years beginning after December 31, 1985.
“(2) Subsection (b).—The amendment made by subsection (b) [amending this section] shall apply to years ending after December 31, 1985.
“(3) Cafeteria plan with group legal benefits.—If, within 60 days after the date of the enactment of this Act [Oct. 22, 1986], an employee elects under a cafeteria plan under section 125 of the Internal Revenue Code of 1986 coverage for group legal benefits to which section 120 of such Code applies, such election may, at the election of the taxpayer, apply to all legal services provided during 1986. The preceding sentence shall not apply to any plan which on August 16, 1986, offered such group legal benefits under such plan.”
Effective Date of 1984 Amendment

Pub. L. 98–612, § 1(d)(1),Oct. 31, 1984, 98 Stat. 3181, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years ending after December 31, 1984.”
Amendment by section 1(b)(3)(A) ofPub. L. 98–612effective Jan. 1, 1985, see section 1(d)(2) ofPub. L. 98–612.
Effective Date of 1983 Amendment

Amendment by Pub. L. 97–448effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 ofPub. L. 97–448, set out as a note under section 1 of this title.
Effective Date

Pub. L. 94–455, title XXI, § 2134(e),Oct. 4, 1976, 90 Stat. 1928, as amended by Pub. L. 95–600, title VII, § 703(b)(1),Nov. 6, 1978, 92 Stat. 2939; Pub. L. 97–34, title VIII, § 802(b),Aug. 13, 1981, 95 Stat. 349; Pub. L. 99–514, § 2,Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) In general.—Except as provided in paragraph (2), the amendments made by this section [enacting this section and section 501 of this title] shall apply to taxable years beginning after December 31, 1976.
“(2) Notice requirement.—For purposes of section 120(d)(7) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] the time prescribed by the Secretary of the Treasury by regulations for giving the notice required by section 120(c)(4) of such Code shall not expire before the 90th day after the day on which regulations prescribed under such section 120 (c)(4) first become final.
“(3) Existing plans.—
“(A) For purposes of section 120 of the Internal Revenue Code of 1986, a written group legal services plan which was in existence on June 4, 1976, shall be considered as satisfying the requirements of subsections (b) and (c) of such section 120 for the period ending with the compliance date (determined under subparagraph (B)).
“(B) Compliance date.—For purposes of this paragraph, the term ‘compliance date’ means—
“(i) the date occurring 180 days after the date of the enactment of this Act [Oct. 4, 1976], or
“(ii) if later, in the case of a plan which is maintained pursuant to one or more agreements which the Secretary of Labor finds to be collective bargaining agreements, the earlier of December 31, 1981, or the date on which the last of the collective bargaining agreements relating to the plan terminates (determined without regard to any extension thereof agreed to after the date of the enactment of this Act [Oct. 4, 1976]).”
Regulations

Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 ofPub. L. 99–514, see section 1141 ofPub. L. 99–514, set out as a note under section 401 of this title.
Extension of Employer-Provided Group Legal Services

Pub. L. 102–227, title I, § 104(a)(2),Dec. 11, 1991, 105 Stat. 1687, provided that: “In the case of any taxable year beginning in 1992, only amounts paid before July 1, 1992, by the employer for coverage for the employee, his spouse, or his dependents, under a qualified group legal services plan for periods before July 1, 1992, shall be taken into account in determining the amount excluded under section 120 of the Internal Revenue Code of 1986 with respect to such employee for such taxable year.”
Special Rule for Taxable Years Beginning in 1990

Pub. L. 101–239, title VII, § 7102(a)(2),Dec. 19, 1989, 103 Stat. 2305, provided that in the case of any taxable year beginning in 1990, only amounts paid before October 1, 1990, by the employer for coverage for the employee, his spouse, or his dependents under a qualified group legal services plan for periods before October 1, 1990, would be taken into account in determining the amount excluded under this section with respect to such employee for such taxable year, prior to repeal by Pub. L. 101–508, title XI, § 11404(b),Nov. 5, 1990, 104 Stat. 1388–473.
Nonenforcement of Amendment Made by Section 1151 of Pub. L. 99–514 for Fiscal Year 1990

No monies appropriated by Pub. L. 101–136to be used to implement or enforce section 1151 ofPub. L. 99–514or the amendments made by such section, see section 528 ofPub. L. 101–136, set out as a note under section 89 of this title.
Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 ofPub. L. 99–514, as amended, set out as a note under section 401 of this title.
Study and Report

Pub. L. 94–455, title XXI, § 2134(d),Oct. 4, 1976, 90 Stat. 1928, provided that a complete study and investigation with respect to the desirability and feasibility of continuing the exclusion from income of certain prepaid group legal services benefits under section 120 of the Internal Revenue Code of 1954 be made by the Secretary of Labor and the Secretary of the Treasury, with a report to the President and the Congress not later than Dec. 31, 1980.

 

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