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Respondent makes a number of alternative arguments to
disallow the deductions and exclusions. Respondent argues that
petitioners’ section 105(b) plan was improper and/or failed on
its own terms, that Mr. Speltz was not a bona fide employee of
the daycare, and that the expenses were not ordinary and
necessary business expenses. Petitioners counter that the
medical premiums and reimbursements should be excluded from Mr.
Speltz’s gross income because petitioners set up a proper section
105(b) plan for daycare employees and that Mr. Speltz was a bona
fide employee. Petitioners also contend that the medical
premiums and reimbursements are deductible from the daycare
business income because they were ordinary and necessary business
expenses of the daycare. We first address the burden of proof.
I. Burden of Proof
The Commissioner’s determinations are presumptively correct,
and the taxpayers bear the burden of proving that the
Commissioner’s determinations are erroneous. Rule 142(a); see
Welch v. Helvering, 290 U.S. 111, 115 (1933). Taxpayers also
bear the burden of proving that they are entitled to the claimed
deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934).
A taxpayer’s burden, however, may shift to the Commissioner
if the taxpayer introduces “credible evidence” complete with the
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