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plan, administered by Mr. Poyda, was provided by him to his
employees who were aged 25 and older, had worked for him for 36
months, and who worked at least 35 hours per week.2 Expenditures
pursuant to this plan were incurred in the following amounts:
1995 1996
Insurance premiums $1,742 $1,243
Reimbursements 3,274 3,734
Total 5,016 4,977
Petitioners filed joint Federal income tax returns in 1995 and
1996. Deductions were claimed by petitioners on Schedules F,
Profit or Loss From Farming, for employee benefits in the amounts
of $5,016 in 1995 and $4,977 in 1996. These expenses were
disallowed by respondent because petitioners did not establish
that these amounts claimed as employee benefits constituted
ordinary and necessary business expenses. The adjustments in the
notice of deficiency increase petitioners’ self-employment income
by $5,016 in 1995 and by $5,000 in 1996.
Respondent argues that the disallowed expenses are not
deductible as trade or business expenses under section 162(a)
because Ms. Poyda was not a bona fide employee of her husband.
A taxpayer generally may deduct “all the ordinary and
necessary expenses paid or incurred during the taxable year in
2Respondent asserts in his trial memorandum that Ms. Poyda
was the only eligible employee under this plan. There is no
evidence in the record indicating whether or not there were other
eligible employees.
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