Understanding IRS Memorandum 202323006 and Compliant Benefit Structures
IRS Chief Counsel Advisory (CCA) 202323006 is a memorandum issued by the Internal Revenue Service addressing the tax treatment of certain employer benefit program structures — specifically those involving “wellness indemnity” payments and fixed cash stipends marketed as health benefits. For employers considering SIMRP-based preventive care programs, understanding what the IRS scrutinized — and how compliant programs differ — is essential.
What the IRS Identified as Problematic
Over the past two decades, the IRS and the Department of Labor have issued repeated warnings about benefit program designs that expose employers and employees to unintended tax liabilities. CCA 202323006 specifically addressed three categories of problematic structures:
1. Circular Payments and Wage Recharacterization
Some programs reduce employee wages pre-tax and then reimburse the same amounts post-tax without any connection to genuine medical expenses. The IRS has identified these as “sham transactions,” treating the reimbursements as taxable income and exposing both employer and employee to FICA liability.
2. Fixed Indemnity Plans
The IRS clarified in CCA 202323006 that fixed indemnity or “wellness indemnity” payments — cash paid to employees regardless of whether actual medical expenses were incurred — must be treated as taxable wages. These are not legitimate medical reimbursements under IRC §105(b).
3. Double Dipping
Earlier schemes attempted to reimburse employees for insurance premiums that had already been paid pre-tax under a §125 cafeteria plan. This effectively excluded the same dollars from taxation twice, which is expressly prohibited under the Internal Revenue Code.
How Compliant SIMRP Programs Differ
The Preventive Care Benefits Program is designed to avoid every issue the IRS identified. Here is how:
Grounded in IRC §105(b): Section 105(b) allows employer reimbursements for medical care expenses to be excluded from an employee's gross income, as long as the expenses qualify under §213(d). In the PCBP, reimbursements are not untethered cash — they are specifically tied to §213(d)-compliant medical benefits such as telehealth, prescriptions, primary care, and counseling.
No untethered cash: The PCBP does not distribute cash stipends or lump-sum payments. All reimbursements are tied to defined, pre-approved §213(d) medical benefits. Because the plan delivers defined benefits directly to employees, the plan itself substantiates that benefits provided are qualified under §213(d). This directly addresses the IRS's concern in CCA 202323006 about payments unlinked to medical care.
No double dipping: The PCBP pairs a compliant §125 salary reduction with a §105(b) non-taxable reimbursement to deliver medical and wellness services. Premiums are paid post-tax, preventing any double exclusion.
Participatory wellness framework: The program is designed under 42 U.S.C. §300gg-4(j)(3)(C), which permits participatory wellness programs to provide defined benefits without requiring employees to meet health outcomes. This reinforces compliance with ACA wellness program requirements.
The Complete Legal Framework
The PCBP's compliance rests on an established set of Internal Revenue Code provisions and federal regulations:
- IRC §105(b) — Exclusion of employer-provided health benefit reimbursements from gross income
- IRC §106(a) — Employer-provided accident and health plan coverage not taxable
- IRC §125 — Cafeteria plan authorizing pre-tax benefit elections
- IRC §213(d) — Definition of qualified medical care expenses
- IRC §104(a)(3) — Exclusion of amounts received under accident and health plans
- Treas. Reg. §1.105-11(i) — Self-insured medical reimbursement plan requirements
- 42 U.S.C. §300gg-4(j)(3)(C) — ACA participatory wellness program standards
- ERISA, HIPAA, ADA — Federal employee benefit, privacy, and disability regulations
Why This Matters for Employers
CCA 202323006 serves an important protective function — it draws a clear line between abusive benefit designs and compliant programs. Employers evaluating any benefit program should ask: Does the program deliver defined medical benefits, or does it distribute cash? Are reimbursements tied to §213(d)-qualified expenses? Does the structure avoid double-excluding the same dollars?
The Preventive Care Benefits Program answers “yes” to each of these questions, which is why it operates confidently within the framework the IRS has outlined.