Thank you. This seems to answer the question. I would have never found this code section on my own. I'm going to assume IRS guidance should say: "Long term care benefits from qualified long term care policies ARE NOT INCLUDABLE IN GROSS INCOME, HOWEVER, ANY LONG TERM CARE BENEFIT RECEIVED BY TAXPAYERS REDUCES THE MEDICAL EXPENSE DEDUCTION THAT WOULD OTHERWISE BE ALLOWABLE IF THE LONG TERM CARE EXPENSE WAS PAID DIRECTLY BY THE TAXPAYERS. Or something like that.
