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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
Regs.
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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