Injured and Spouse were injured in an automobile accident. Their total medical expenses incurred were $2,500.

(a) In the year of the accident they properly deducted $1,500 of the expenses under Section 213 on their joint income tax return and filed suit against Wrongdoer. In the succeeding year they settled their claim against Wrongdoer for $2,500. What income tax consequences on receipt of the $2,500 settlement?

(b) In the succeeding year Spouse was ill but, fortunately, they carried medical insurance and additionally Spouse had insurance benefits under a policy provided by Employer. Spouses medical expenses totaled $4,000 and they received $3,000 of benefits under their policy and $2,000 of benefits under Employers policy. To what extent are the benefits included in their gross income? (See footnote 29 on page 200, supra.)

(c) Under the facts of (b), above, may Injured and Spouse deduct the medical expenses? (See Section 213(a).)