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effect, respondent’s determination did not allow the offsetting
expenses in calculating gross income. Respondent explains that
it was not necessary to make a further adjustment regarding the
offsetting expenses, insofar as they did not exceed the
compensation. That is so because petitioners did not claim them
on Schedules C, Profit or Loss From Business, or Schedules A of
their returns as deductions from the gross or adjusted gross
income that was used to compute petitioners’ respective taxable
income. Accordingly, respondent did not expressly state that the
offsetting expenses, up to the amount of the compensation, were
disallowed as business deductions or as miscellaneous itemized
deductions.
Petitioners argue that respondent’s failure to make an
express determination with respect to the employee expenses
claimed on Forms 2106 results in the employee expenses’ not being
placed in issue. Petitioners further argue that if the expenses
are not in issue, then the Court lacks subject-matter
jurisdiction over the offsetting expenses. Next, petitioners
contend that they did not raise the expenses in their petitions
and therefore the expenses are allowable as reflected on their
Forms 2106.
Respondent counters that his determination corresponded to
petitioners’ reporting approach. Respondent determined that the
nonemployee compensation is includable in gross income on page 1
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Last modified: May 25, 2011