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paid by NCMI to petitioners’ attorney under a “reimbursement or
other expense allowance arrangement” under section 62(a)(2)(A)
and (c).3
If petitioners’ argument should succeed, petitioners’ return
treatment, in which they did not include in gross income or even
disclose NCMI’s $401,000 payment to Olimpia, Whelan, & Lively,
would be vindicated; petitioners would not even be required to
include the payment in gross income and claim a deduction in
arriving at adjusted gross income under section 62(a)(2)(A)–-the
payment would be excluded from Mr. Biehl’s gross income as having
been paid pursuant to an “accountable plan”, as defined in
section 1.62-2, Income Tax Regs.
For the reasons discussed below, we hold that Mr. Biehl’s
attorney’s fee was not paid under an employee reimbursement or
other expense allowance arrangement under section 62(a)(2)(A) and
(c); the statutory language, the regulations implementing these
provisions, legislative history explaining them, and caselaw show
that attorney’s fees of former employees in wrongful termination
cases against their former employers do not qualify as having
been paid under such an arrangement. The attorney’s fee does not
3 See Brenner v. Commissioner, T.C. Memo. 2001-127 (taxpayer
failed to substantiate his expenses to his former employer as
required by sec. 1.62-2(e), Income Tax Regs.); Alexander v.
Commissioner, T.C. Memo. 1995-51 (taxpayer did not prove that
payment was made under a reimbursement arrangement with his
former employer), affd. 72 F.3d 938 (1st Cir. 1995).
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