Frank and Barbara Biehl - Page 9

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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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