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without limits. The cases acknowledge as much by articulating
the bounds of the phrase. Specifically, Fort Howard Corp. v.
Commissioner, supra at 353, and Huntsman v. Commissioner, supra
at 1185, found a “connection” existed when the expenditure at
issue was “integrated” or “integral to” that to which it is
allegedly connected.
In the context of reimbursement arrangements, the statute,
cases, regulations, and legislative history compel the conclusion
that legal fees incurred by former employees are not “integrated”
with or “integral to” the performance of services as an employee
of the employer and therefore fall outside the broad scope of “in
connection with”. The teaching of these authorities is that a
reimbursed expense can be “in connection with” the performance of
services as an employee only if it is incurred by an employee on
behalf of the employer that is providing the reimbursement.
The business connection requirement of section 62(a)(2)(A)
was incorporated into the regulations implementing section 62(c)
by section 1.62-2(d), Income Tax Regs. Under section 1.62-2(d),
Income Tax Regs., a deductible expense has a business connection
if it is “incurred by the employee in connection with the
performance of services as an employee of the employer.”
(Emphasis added.) The emphasized language clarifies that the
expense must be incurred in the course of a current employer-
employee relationship, not merely “spawned” by or have its origin
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