Andrew S. and Linda Hayworth Brenner - Page 20

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                    (3)  Conclusion                                                   
               With respect to the legal fees, petitioner did not meet the            
          substantiation requirement of section 1.62-(2)(e)(3), Income Tax            
                    c.  Returning Amounts in Excess of Expenses                       
               Because we find that petitioner failed to satisfy the                  
          substantiation requirements of the regulations, it is unnecessary           
          to decide whether the conditions of section 1.162-2(f), Income              
          Tax Regs., were met.  We note, however, that there is obviously a           
          technical violation of that paragraph arising from our finding              
          that petitioner failed to provide adequate substantiation of the            
          legal fees.  Under such circumstances, he necessarily failed “to            
          return to the payor [Nomura] * * * [amounts] paid under the                 
          arrangement in excess of the expenses substantiated” as required            
          by section 1.62-2(f)(1), Income Tax Regs.                                   
                    d.  Nonaccountable Plan                                           
               Amounts paid by Nomura to petitioner in excess of                      
          substantiated expenses, which we find to be the entire $600,000             
          assumed reimbursement of the legal fees, are treated as paid                
          under a nonaccountable plan.  Sec. 1.62-2(c)(2)(ii) and (3)(ii),            
          Income Tax Regs.  Therefore, the entire $600,000 was properly               
          treated by Nomura as wages or other compensation on petitioner’s            
          1998 Form W-2, and by petitioners (to the extent of the $215,354            

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