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carrying on any trade or business”. Sec. 162(a). This includes
expenditures for “a sickness, accident, hospitalization, medical
expense, * * * or similar benefit plan * * * if they are ordinary
and necessary expenses of the trade or business.” Sec. 1.162-
10(a), Income Tax Regs.
An ordinary expense is one that relates to a transaction “of
common or frequent occurrence in the type of business involved”,
Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary
expense is one that is “appropriate and helpful” for “the
development of the petitioner’s business,” Welch v. Helvering,
290 U.S. 111, 113 (1933).
We first address the question whether Ms. Poyda was an
employee of her husband. Whether an individual is an employee is
a question of fact. See Packard v. Commissioner, 63 T.C. 621,
629-630 (1975); Haeder v. Commissioner, T.C. Memo. 2001-7. To
determine whether an employer-employee relationship exists,
courts generally apply a common law agency test. See Matthews v.
Commissioner, 92 T.C. 351, 360-361 (1989), affd. 907 F.2d 1173
(D.C. Cir. 1990). Where a family relationship is involved, close
scrutiny is required to determine whether a bona fide employer-
employee relationship existed, and whether payments were made on
account of such a relationship or instead on account of the
family relationship. See Haeder v. Commissioner, supra.
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