Michael E. and Nancy Hentges - Page 4

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               (3) Travel, meals, & entertainment:                                    
          Travel                         2,460                                        
          Meals & entertainment (80%)    3,017              5,477                     
          Total disallowed expenses                    $25,528                        

          The stated reason for disallowance of these expenses is that the            
          expenses were not substantiated pursuant to section 274(d).                 
          Petitioners challenge that determination.4                                  
               With respect to the airplane, since petitioner was not a               
          licensed pilot during 1992, he was required to engage the                   
          services of a licensed pilot on the trips he made in connection             
          with his business.  Petitioner, however, was also taking flying             
          lessons during 1992, and, on several of his business trips,                 
          petitioner engaged his flight instructor as the pilot.  Each such           
          flight, however, qualified as a training lesson for petitioner.             
          The bill submitted by the pilot for each of these trips                     
          identifies the charge as a fee for flight instruction.                      
          Petitioner maintains, however, that such charges were no higher             
          than the costs of a regular pilot.  At the same time, petitioner            
          argues, each such trip contributed to his training for                      

               4    Insofar as any of the $25,528 of expenses at issue may            
          be attributable to petitioner's activity as an employee rather              
          than as a self-employed individual, respondent conceded at trial            
          that petitioner qualified as an employee under sec. 3121(d)(3)(B)           
          as a full-time life insurance salesman; therefore, any expenses             
          allocable to petitioner's income as an employee would not be                
          subject to the 2-percent limitation of sec. 67(a).  Thus, such              
          expenses would be treated in the same manner as petitioner's                
          self-employed activity expenses.                                            




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