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XIII may still qualify as an accountable plan with respect to
Nomura employees other than petitioner.
2. Application to Petitioner’s Legal Fees
a. Business Connection
A reimbursement arrangement satisfies the business
connection requirement if it is limited to reimbursement for
deductible business expenses “that are paid or incurred by the
employee in connection with the performance of services as an
employee of the employer.” See sec. 1.62-2(d)(1), Income Tax
Regs. In this case, the reimbursed legal fees relate to actions
and proceedings that arose out of petitioner’s prior employment
with Nomura and, specifically, to Nomura’s termination of that
employment. As such, they satisfy the business connection
requirement. See Alexander v. Commissioner, 72 F.3d 938, 945
(1st Cir. 1995), affg. T.C. Memo. 1995-51; McKay v. Commissioner,
102 T.C. 465, 489 (1994), vacated and remanded on another issue
without published opinion 84 F.3d 433 (5th Cir. 1996).3
b. Substantiation
(1) Introduction
Under section 1.62-2(e)(1), Income Tax Regs., an arrangement
that reimburses business expenses meets the substantiation
3 For purposes of discussion, we accept as satisfied a
second requirement of sec. 1.62-2(d)(1), Income Tax Regs., that
the business expense reimbursement be “identified” where, as in
this case, “both wages and the reimbursement * * * are combined
in a single payment”.
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