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Respondent relies on section 62 and the related regulations
in contending that bad debt deductions in connection with the
trade or business of being an employee are treated as itemized
deductions. Section 62 provides in part:
SEC. 62(a). General Rule.--For purposes of this
subtitle, the term “adjusted gross income” means, in the
case of an individual, gross income minus the following
deductions:
(1) Trade and business deductions.--The
deductions allowed by this chapter (other than by
part VII of this subchapter) which are
attributable to a trade or business carried on by
the taxpayer, if such trade or business does not
consist of the performance of services by the
taxpayer as an employee. [Emphasis added.]
The statute provides, with exceptions none of which are
applicable here, that a taxpayer may not deduct as a trade or
business deduction items connected with the performance of
services as an employee. The parties stipulated that
petitioner’s trade or business of operating KPS consisted of his
performance of services as an employee. Under the statute, items
connected with the performance of those services are not
deductible in arriving at adjusted gross income.
Section 1.62-1T(d), Temporary Income Tax Regs., 53 Fed. Reg.
9874 (Mar. 28, 1988), further amplifies this point as follows:
“For the purpose of the deductions specified in section 62, the
performance of personal services as an employee does not
constitute the carrying on of a trade or business, except as
otherwise expressly provided.” Because petitioner’s trade or
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