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in the taxpayer’s former trade or business of being an employee
of his former employer.12
It is a well-settled axiom that the touchstone of the
employer-employee relationship is the employer’s dominion and
control over, or right to control, the services performed by the
employee. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318
(1992); Gen. Inv. Corp. v. United States, 823 F.2d 337, 341 (9th
Cir. 1987). That touchstone is missing when the expense is
incurred after the relationship has ended. If the former
employee is no longer under the dominion and control of the
former employer, the expense cannot be properly characterized as
having been “paid or incurred by the employee in connection with
the performance of services as an employee of the employer.” In
such a case, as in the case at hand, the expense has a
“connection” to the employee’s performance of services only in
the attenuated or remote sense that the expense can be considered
to relate back to, or to have arisen from, the employment
relationship.
12Property or services provided to an employee of the
employer are excluded from gross income as a working condition
fringe benefit under sec. 132(a)(3) to the extent that, if the
employee paid for such property or services, the payment would be
allowed as a deduction under sec. 162. See sec. 132(d). The
regulations under sec. 132 explicitly give “employee” the meaning
we find implicit in sec. 62(a)(2)(A): an “employee” for purposes
of sec. 132(a)(3), concerning working condition fringe benefits,
is “Any individual who is currently employed by the employer.”
Sec. 1.132-1(b)(2)(i), Income Tax Regs.
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