>Payments can be made to such accounts through either Section 731 distributions or Section 707(c) guaranteed payments. The guideline also deals with contributions from an S corporation.
>The IRS notice (Notice 2005-8) states that “contributions by a partnership to a bona fide partner’s HSA are not contributions by an employer to the HSA of an employee,” for tax purposes. They are instead to be treated as distributions to the partner under section 731, and are thus not deductible by the partnership and do not affect the distributive shares of the partnership’s income and deductions. Contributions in this manner are to be reporting on Schedule K-1 (Form 1065), and are not included in the partner’s net earning from self-employment under Section 1402(a).
>If contributions are made under section 707(c), they are deductible by the partnership under section 162 (if the requirements of that section are satisfied), and are included in the partner’s gross income.
>According to the guideline, contributions from an S corporation to an HSA of a 2% shareholder are treated the same as a guaranteed payment under section 707(c).
>The notice will be published in the Internal Revenue Bulletin 2005-4, on January 24.