Ronald and Judith Francis - Page 6

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          carrying on a trade or business.  Sec. 162(a).  Ordinary and                
          necessary business expenses include the reimbursement of employee           
          benefit plan expenses for expenses the employee pays or incurs.             
          Sec. 162(a)(1); sec. 1.162-10, Income Tax Regs.  Employee benefit           
          plan expense reimbursements are deductible if they are paid to a            
          bona fide employee, they are an ordinary and necessary expense,             
          the amount deducted is substantiated,4 the amount deducted was              
          reasonable in amount, and the payment was in fact purely for                
          services.  Sec. 162; secs. 1.162-7(a), 1.162-10(a), Income Tax              
          Regs.                                                                       
               Respondent argues that petitioners are not entitled to a               
          business expense deduction for the employee benefit plan expense            
          reimbursement because they failed to prove that the total                   
          compensation paid to Mrs. Francis in 2001 was reasonable in                 
          amount.  We agree.                                                          
               The deductibility of employee benefit plan expenses                    
          generally requires proof, in the first instance, of an employer-            
          employee relationship.  Respondent concedes that Mr. Francis had            
          the right to control5 Mrs. Francis in her performance of services           


               4Respondent concedes that the amount deducted was                      
          substantiated.                                                              
               5Although no single factor is controlling, the “right to               
          control” the activities of the individual whose status is in                
          issue is the “fundamental test” of whether an employer-employee             
          relationship exists.  Profl. & Executive Leasing, Inc. v.                   
          Commissioner, 89 T.C. 225, 232 (1987), affd. 862 F.2d 751, 753              
                                                             (continued...)           




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