James A. and Debra J. Poyda - Page 5




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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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