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Generally, respondent determined that petitioners should
have included the nonemployee income reflected on the Forms 1099-
MISC in gross income and not in an offset format on their Forms
2106. In years where petitioners claimed the excess of employee
expenses over nonemployee compensation on the Schedules A,
respondent determined that said excess expenses had not been
substantiated or shown by petitioners to be ordinary and
necessary.8 Respondent employed the following explanatory
language, with certain minor variations for each group of
petitioners, in determining the relevant adjustments to
petitioners’ income:
Nonemployee Compensation
It is determined that you have nonemployee compensation
from American Energy Services, Inc. in the amount of
* * * rather than * * * as reported on your * * *
income tax returns. Accordingly, your taxable income
is increased * * *.
Itemized Deductions * * * [year]
It is determined that you have miscellaneous expenses,
subject to the two percent of adjusted gross income
8 In years where there was an excess of expenses over the
amount of nonemployee compensation on the Forms 2106, petitioners
claimed the excess on the Schedules A as itemized deductions. In
those years, respondent determined that the nonemployee
compensation was includable in gross income and disallowed the
excess expenses claimed on the Schedules A. In years where the
nonemployee compensation exceeded the expenses claimed on the
Forms 2106 and petitioners reported the excess on page 1 as gross
income, respondent determined that the amounts that had been
offset on the Forms 2106 were also includable on page 1 as gross
income. In either event, respondent did not explicitly disallow
the expenses claimed on the Forms 2106.
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Last modified: May 25, 2011