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Discussion
A. Petitioner’s Employment Status9
Generally, adjusted gross income means gross income less
trade or business expenses, except in the case of the performance
of services by an employee. Sec. 62(a)(1). As relevant herein,
an individual performing services as an employee may deduct
expenses incurred in the performance of services as an employee
only as miscellaneous itemized deductions on Schedule A, Itemized
Deductions, and then only to the extent such expenses exceed 2
percent of the individual’s adjusted gross income. Secs.
62(a)(2); 63(a), (d); 67(a) and (b); 162(a). In contrast, an
individual who qualifies as a statutory employee as defined under
section 3121(d)(3) is not subject to the section 67(a) 2-percent
limitation for expenses incurred in the performance of services
as an employee. Rev. Rul. 90-93, 1990-2 C.B. 33.10 Thus, a
statutory employee under section 3121(d)(3) is allowed to deduct
expenses from gross income on Schedule C that otherwise would be
9 We render a decision on the merits based on the
preponderance of the evidence, without regard to the burden of
proof under sec. 7491(a).
10 Rev. Rul. 90-93, 1990-2 C.B. 33, provides that an
individual treated as a statutory employee under sec. 3121(d)(3)
for employment tax purposes who would otherwise be characterized
as an independent contractor is not considered an employee for
purposes of secs. 62 and 67, and, therefore, may deduct business
expenses on Schedule C.
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