-6- carrying on a trade or business. Sec. 162(a). Ordinary and necessary business expenses include the reimbursement of employee benefit plan expenses for expenses the employee pays or incurs. Sec. 162(a)(1); sec. 1.162-10, Income Tax Regs. Employee benefit plan expense reimbursements are deductible if they are paid to a bona fide employee, they are an ordinary and necessary expense, the amount deducted is substantiated,4 the amount deducted was reasonable in amount, and the payment was in fact purely for services. Sec. 162; secs. 1.162-7(a), 1.162-10(a), Income Tax Regs. Respondent argues that petitioners are not entitled to a business expense deduction for the employee benefit plan expense reimbursement because they failed to prove that the total compensation paid to Mrs. Francis in 2001 was reasonable in amount. We agree. The deductibility of employee benefit plan expenses generally requires proof, in the first instance, of an employer- employee relationship. Respondent concedes that Mr. Francis had the right to control5 Mrs. Francis in her performance of services 4Respondent concedes that the amount deducted was substantiated. 5Although no single factor is controlling, the “right to control” the activities of the individual whose status is in issue is the “fundamental test” of whether an employer-employee relationship exists. Profl. & Executive Leasing, Inc. v. Commissioner, 89 T.C. 225, 232 (1987), affd. 862 F.2d 751, 753 (continued...)Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011