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generally two types of deductible expenses--those used in
computing AGI and those that are deductible from AGI. Deductions
used in arriving at AGI would be favored because such deductions
are not subject to certain limitations, including those provided
for in sections 67 and 68. Congress, in defining AGI, provided
that certain reimbursed expenses of employees could be treated as
deductions in computing AGI. Sec. 62(a)(2)(A). Under the
section 62 regulations, a distinction is made between the so-
called accountable reimbursement plans and those which are
nonaccountable. If an employer establishes an accountable plan,
the employees are not required to report the reimbursement in
gross income. If the employer’s plan is nonaccountable, the
regulations provide that the employee’s expenses, if properly
substantiated, are allowable as deductions from AGI and subject
to various limitations, including those of section 67. Sec.
1.62-2(c)(5), Income Tax Regs. Likewise, if there is no
reimbursement arrangement, the employee deductions will be from
AGI and not allowable under section 62(a)(2).
The parties have stipulated that AES did not have an
accountable plan, and so petitioners were not entitled to offset
or reduce the Form 1099-MISC compensation (nonaccountable
reimbursement) by their employee expenses without including the
compensation in gross income. As outlined above, petitioners
were required to include the Form 1099-MISC compensation in gross
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