- 43 -
employee constitutes a trade or business. See O'Malley v.
Commissioner, 91 T.C. 352, 363-364 (1988).
When an employee, however, has a right to reimbursement for
expenditures related to his status as an employee but fails to
claim such reimbursement, the expenses are not deductible because
they are not "necessary" within the meaning of section 162; i.e.,
it is not necessary for an employee to remain unreimbursed for
expenses to the extent he could have been reimbursed. See Orvis
v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), affg. T.C.
Memo. 1984-533; Lucas v. Commissioner, 79 T.C. 1, 7 (1982);
Kennelly v. Commissioner, 56 T.C. 936, 943 (1971), affd. without
published opinion 456 F.2d 1335 (2d Cir. 1972). The employee has
the burden of establishing that the employer would not reimburse
the expense had the employee requested reimbursement. See Podems
v. Commissioner, 24 T.C. 21, 23 (1955). Moreover, the
prohibition of deductions for reimbursable expenses is a "bright
line rule" and applies even when the employee is unaware that the
expenses are reimbursable. See Orvis v. Commissioner, supra at
1408.
Orange Co.'s certificate of incorporation required
indemnification of officers for expenses arising from acts
performed in good faith and in a manner reasonably believed to be
in the best interest of Orange Co. All of the SEC and Orange Co.
litigation expenses Mr. Davis deducted in 1987 and 1988 were
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