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Cir. 2003). Respondent admits that petitioner was an employee of
IMC during all of the years in issue.
In the notice of deficiency and on brief, respondent allowed
deductions under section 162 for the expenses petitioner paid in
connection with the performance of services as an employee of
IMC. A deduction under section 162(a) requires that the reported
expenses be “directly connected with or pertaining to” the
taxpayer’s trade or business. Sec. 1.162-1(a), Income Tax Regs.
Petitioner kept track of the expenses he made carefully, even
deducting sales tax from his expense reports when his own
personal purchases were on receipts with purchases he made for
IMC. Petitioner was dedicated to IMC’s business, and the work he
was doing to develop IMC’s products. We believe that the
expenses he made and listed on the expense reports were directly
connected to IMC’s business of developing its products.
Therefore, we conclude that the business connection requirement
was met here.
B. Substantiation Requirement
An arrangement meets the substantiation requirement if it
requires that each business expense be substantiated to the payor
within a reasonable period of time. Sec. 1.62-2(e)(1), Income
Tax Regs. A reasonable period of time depends on the facts and
circumstances of each arrangement. Sec. 1.62-2(g)(1), Income Tax
Regs. For travel, entertainment, and other expenses governed by
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