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used in the regulations under section 62.3 Patrick and Larry
included the Form 1099-MISC nonemployee compensation on their
respective Forms 2106 in conjunction with their claims for
employee expenses. Accordingly, the nonemployee compensation
from AES was offset by Patrick’s and Larry’s employee business
expenses claimed on their respective Forms 2106. In this manner,
the offset portion of the nonemployee compensation from AES was
not included in Patrick’s and Larry’s gross income reported on
page 1 of their returns for each tax year.
In the process of offsetting the income and expenses on
their Forms 2106, Patrick and Larry generally treated the excess
amount of employee business expenses or nonemployee compensation
in a similar manner. If their claimed expenses exceeded the
nonemployee compensation reflected on the Form 2106, the excess
expense amount was carried to Schedule A, Itemized Deductions,
and claimed as employee expenses deductible from adjusted gross
income. If their nonemployee compensation exceeded their claimed
employee business expenses, then the excess compensation was
included in gross income on page 1 of their Forms 1040, U.S.
Individual Tax Return. Patrick and Larry differed in their
3 Unless otherwise indicated, section references are the
Internal Revenue Code in effect for the period under
consideration, and Rule references are to the Tax Court’s Rules
of Practice and Procedure.
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Last modified: May 25, 2011