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FINDINGS OF FACT
Each set of petitioners, Patrick and Donna Elliott and Larry
and Julia Elliott, respectively, was married and filed joint
Federal income tax returns for each of the years under
consideration. All petitioners resided in the State of Texas at
the time their petitions were filed. Patrick and Larry, at all
pertinent times, were employees, officers, and shareholders of
American Energy Services, Inc. (AES). Patrick owned 30 percent
of the AES stock, and he served as its vice president. Larry
owned 29 percent of the AES stock and he served as its president.
Patrick and Larry received Forms W–2, Wage and Tax
Statement, showing wages from AES and reported the amounts as
gross income (from wages) on page 1, line 7, of their Federal
income tax returns. Patrick and Larry also received Forms 1099-
MISC, Miscellaneous Income, reflecting additional amounts paid to
them by AES. The Form 1099-MISC income was received from AES
under its employee reimbursement plan for Patrick and Larry.
AES’ reimbursements were made without review of the employee’s
expenditures and provided for reimbursement of amounts up to
$40,000 annually. AES did not have an “accountable plan” for
reimbursement of travel and business expenses as that term is
2(...continued)
Accordingly, if petitioners’ procedural attack is unsuccessful,
they will not be entitled to deductions.
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Last modified: May 25, 2011