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Petitioner contends that the disallowed legal expenses were
incurred by him while he was engaged in the course and scope of
his employment with GBC, and, thus, such expenses are deductible
as ordinary and necessary business expenses under section 162(a).
Respondent argues, on the other hand, that the disallowed legal
expenses were personal expenses of petitioner that are not
deductible pursuant to section 262.
Expenses incurred by an employee in the course of employment
that are not reimbursed by the employer may be deductible under
section 162(a), which allows a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business.5 Primuth v. Commissioner, 54
T.C. 374, 377 (1970). To qualify for the deduction, an expense
must be both ordinary and necessary within the meaning of section
162(a). Deputy v. duPont, 308 U.S. 488, 495 (1940). Whether an
amount claimed constitutes an ordinary and necessary expense as
an employee business expense is a question of fact to be
5
Petitioner's Federal income tax returns for 1991 and 1992
included a Schedule C for a "Financial Services" activity. This
activity, while not addressed at trial, was apparently unrelated
to petitioner's employment with GBC. Petitioner was paid a
salary by GBC, which he reported on his income tax returns as
salary or wage income. The sexual assault matter was not claimed
by petitioner to have arisen out of petitioner's Schedule C
financial services activity; nevertheless, petitioner's expenses
for the defense of the sexual assault charge were claimed as
Schedule C deductions. As was noted by counsel for respondent at
trial, if petitioner is allowed a deduction for the legal
expenses at issue, such expenses would constitute unreimbursed
employee business expenses and would be deductible as itemized
deductions, subject to the 2-percent limitation of sec. 67(a).
Petitioner did not challenge this assertion.
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