Rick Jones (“Mr. Jones” or “Rick”) worked for Victory, Inc. (“Victory” or the “Company”) for 15 years. Unfortunately, this year the Company experienced some financial difficulties and laid off several employees including Mr. Jones. The Company has a very generous health insurance program that provides coverage to all employees, even those who have retired or been laid off within the past two years.

The Company continues to pay all health insurance premiums for Rick even while he is not working because of the layoff. Prior to being laid off, Victory never included in Mr. Jones’s income the value of the health premiums paid on his behalf. Rick is ready and available to return to work if his position is reopened. The tax director at Victory, Inc., Sue Porter has asked you if the amount of the health insurance premiums paid on behalf of Rick since his layoff should be reported as income to him.

Prepare a letter responding to Ms. Porter’s inquiry. Please be sure your letter is an appropriate business communication. Ms. Porter has a master’s degree in accounting and has adequate knowledge of the tax law.