
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC120]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
         PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
 
Sec. 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.

                        (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) of section 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.

(Added Pub. L. 94-455, title XXI, Sec. 2134(a), Oct. 4, 1976, 90 Stat. 
1926; amended Pub. L. 97-34, title VIII, Sec. 802(a), Aug. 13, 1981, 95 
Stat. 349; Pub. L. 97-448, title I, Sec. 108(a), Jan. 12, 1983, 96 Stat. 
2391; Pub. L. 98-612, Sec. 1(a), (b)(3)(A), Oct. 31, 1984, 98 Stat. 
3180, 3181; Pub. L. 99-514, title XI, Secs. 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, Sec. 1011B(a)(31)(B), title IV, Sec. 4002(a), 
(b)(1), Nov. 10, 1988, 102 Stat. 3488, 3643; Pub. L. 101-140, title II, 
Sec. 203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830; Pub. L. 101-239, title 
VII, Sec. 7102(a)(1), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101-508, 
title XI, Sec. 11404(a), Nov. 5, 1990, 104 Stat. 1388-473; Pub. L. 102-
227, title I, Sec. 104(a)(1), Dec. 11, 1991, 105 Stat. 1687.)


                            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, Sec. 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

    1991--Subsec. (e). Pub. L. 102-227 substituted ``June 30, 1992'' for 
``December 31, 1991''.
    1990--Subsec. (e). Pub. L. 101-508 substituted ``December 31, 1991'' 
for ``September 30, 1990''.
    1989--Subsec. (b). Pub. L. 101-140, Sec. 203(a)(1), amended subsec. 
(b) to read as if amendments by Pub. L. 99-514, Sec. 1151(c)(3), had not 
been enacted, see 1986 Amendment note below.
    Subsec. (c)(2). Pub. L. 101-140, Sec. 203(a)(2), amended par. (2) to 
read as if amendments by Pub. L. 100-647, Sec. 1011B(a)(31)(B), had not 
been enacted, see 1988 Amendment note below.
    Pub. L. 101-140, Sec. 203(a)(1), amended par. (2) to read as if 
amendments by Pub. L. 99-514, Sec. 1151(g)(1), had not been enacted, see 
1986 Amendment note below.
    Subsec. (e). Pub. L. 101-239 substituted ``taxable years beginning 
after September 30, 1990'' for ``taxable years ending after December 31, 
1988''.
    1988--Subsec. (a). Pub. L. 100-647, Sec. 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, Sec. 1011B(a)(31)(B), substituted 
``there shall'' for ``there may'' and ``who are'' for ``who may be''.
    Subsec. (e). Pub. L. 100-647, Sec. 4002(a), substituted ``1988'' for 
``1987''.
    1986--Subsec. (b). Pub. L. 99-514, Sec. 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, Sec. 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, Sec. 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, Sec. 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, Sec. 1162(b), substituted ``December 
31, 1987'' for ``December 31, 1985''.
    1984--Subsec. (e). Pub. L. 98-612, Sec. 1(a), substituted ``December 
31, 1985'' for ``December 31, 1984''.
    Subsec. (f). Pub. L. 98-612, Sec. 1(b)(3)(A), added subsec. (f).
    1983--Subsec. (e). Pub. L. 97-448 substituted ``This section and 
section 501(c)(20) shall not apply'' for ``This section shall not 
apply''.
    1981--Subsec. (e). Pub. L. 97-34 added subsec. (e).


                    Effective Date of 1991 Amendment

    Section 104(b) of Pub. L. 102-227 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

    Section 11404(c) of Pub. L. 101-508 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 Amendments

    Section 7102(b) of Pub. L. 101-239 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. 101-140 effective as if included in section 
1151 of Pub. L. 99-514, see section 203(c) of Pub. 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) of Pub. L. 100-647 effective, 
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) of Pub. L. 100-647, set out as a note under section 1 of 
this title.
    Section 4002(c) of Pub. L. 100-647 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) of Pub. L. 99-514 applicable to 
years beginning after Dec. 31, 1987, see section 1114(c)(2) of Pub. L. 
99-514, set out as a note under section 414 of this title.
    Amendment by section 1151(c)(3), (g)(1) of Pub. L. 99-514 
applicable, with certain qualifications and exceptions, to years 
beginning after Dec. 31, 1988, see section 1151(k) of Pub. L. 99-514, as 
amended, set out as a note under section 79 of this title.
    Section 1162(c) of Pub. L. 99-514 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

    Section 1(d)(1) of Pub. L. 98-612 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) of Pub. L. 98-612 effective Jan. 1, 
1985, see section 1(d)(2) of Pub. L. 98-612.


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 97-448 effective, 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 of Pub. L. 97-448, set out as a note under section 1 of this title.


                             Effective Date

    Section 2134(e) of Pub. L. 94-455, as amended by Pub. L. 95-600, 
title VII, Sec. 703(b)(1), Nov. 6, 1978, 92 Stat. 2939; Pub. L. 97-34, 
title VIII, Sec. 802(b), Aug. 13, 1981, 95 Stat. 349; Pub. L. 99-514, 
Sec. 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 of 
Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out as a note 
under section 401 of this title.


           Extension of Employer-Provided Group Legal Services

    Section 104(a)(2) of Pub. L. 102-227 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

    Section 7102(a)(2) of Pub. L. 101-239 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, 
Sec. 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. 101-136 to be used to implement or 
enforce section 1151 of Pub. L. 99-514 or the amendments made by such 
section, see section 528 of Pub. 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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require 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 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.


                            Study and Report

    Section 2134(d) of Pub. L. 94-455 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 414, 501, 3121, 3306, 3231, 
6039D of this title; title 42 section 409.
