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of petitioners’ Forms 1040 without the offset of the expenses
claimed on the Forms 2106. Because the expenses were not claimed
on the Schedules A as deductions from reported adjusted gross
income (AGI), there was no need for respondent to expressly
disallow the expenses. By increasing gross income without a
reduction for the expenses, respondent contends that tacit
disallowance has been effected. Under those circumstances,
respondent contends that it was up to petitioners to assert the
manner in which the employee expenses they had reflected on the
Forms 2106 would be deductible if not allowable in offset of the
compensation shown on the Forms 1099-MISC.
The parties have each postured their arguments to facilitate
the result they seek. From the Court’s perspective, however, the
question boils down to whether respondent’s determination
provided sufficient information to advise petitioners that they
were not receiving the benefit of the expense offset. We agree
with petitioners that no express language was employed by
respondent to advise petitioners that no offset of expenses was
being allowed. In that regard, respondent’s income-side
adjustments did carry with them the implication that the setoff
of the expenses was not being allowed.
Petitioners’ methodology of offsetting expenses directly
from what would have otherwise been reported as gross income was
not permissible. From an employee’s perspective, there are
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