Frank and Barbara Biehl - Page 20

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               The attorney’s fee Mr. Biehl incurred is deductible under              
          section 162(a).  Mr. Biehl was in the trade or business of being            
          an employee of NCMI, and the transaction that was the subject of            
          the lawsuit, NCMI’s termination of his employment, arose in the             
          context of Mr. Biehl’s trade or business.  The attorney’s fee               
          NCMI paid to Mr. Biehl’s attorney satisfies the threshold                   
          requirement of section 62(a), that the fee be deductible under              
          section 162(a).  We therefore must scrutinize the attorney’s fee            
          under the business connection requirement of section 62(a)(2)(A)            
          and the accountable plan regulations.                                       
               Business Connection Requirement                                        
               A deductible expense satisfies the business connection                 
          requirement only if it was “paid or incurred by the employee in             
          connection with the performance of services as an employee of the           
          employer.”11  Sec. 1.62-2(d)(1), Income Tax Regs.; see also sec.            

               11We note that in Brenner v. Commissioner, T.C. Memo. 2001-            
          127, we stated that expenses that “arose out of * * * [the                  
          taxpayer’s] prior employment” satisfied the business connection             
          requirement.  That conclusory statement was obviously not                   
          intended to be a complete expression of the business connection             
          requirement and the conditions for its satisfaction.  Our                   
          statement was merely one of a series of assumptions by the Court            
          in order to decide whether the taxpayer properly substantiated              
          his expenses to his former employer.  The statement was dictum              
          because the Court had previously stated, in setting forth the               
          basis on which it was deciding the case:                                    
                    We shall deal first with the question of whether                  
               * * *  [the employer] reimbursed the legal fees                        
               pursuant to, and in accordance with, Article XIII.                     
               Since, as we shall explain, we cannot make that                        

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Last modified: May 25, 2011