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inclusion of the excess compensation in that one included the
excess as wage income and the other as “Other Income”.
Respondent determined that petitioners should have reported
the nonemployee compensation as part of their gross income and
not in connection with Patrick’s and Larry’s Forms 2106. In
addition to determining that nonemployee compensation was
includable in gross income, respondent also determined that the
excess employee expenses over nonemployee compensation that had
been claimed on the Schedules A were not allowable for failure to
show them to be ordinary and necessary and/or lack of
substantiation. Petitioners have conceded that respondent did
not err in disallowing the excess portions of employee business
expenses claimed on petitioners’ Schedules A.
OPINION
Petitioners, on Forms 2106, offset employee expenses against
employee reimbursement compensation received from their
company/employer. Accordingly, no portion of the compensation
that had been offset was included in gross income reported on
page 1 of petitioners’ income tax returns. Petitioners should
have included the compensation in gross income and deducted the
expenses, if adequately substantiated, on Schedules A (as
deductions from adjusted gross income). Respondent’s
determination was to simply include the compensation, unreduced
by the offsetting expenses, in petitioners’ gross income. In
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Last modified: May 25, 2011