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Farming, accompanying their 2001 return, petitioners deducted
$8,661 for employee benefits programs.
In 2002, Mrs. Stephens worked 1,258 hours for the harvesting
business and the farm and was issued a Form W-2. Thereafter,
Mrs. Stephens submitted an employee benefit expense transmittal
form to AgriPlan/BizPlan claiming that, in 2002, she had paid
$11,242 for medical expenses. Of this total, $5,985 was
attributable to the health insurance premiums relating to the
Blue Cross/Blue Shield plan, and $5,257 was attributable to out-
of-pocket medical expenses. These expenses were paid out of
petitioners’ joint bank account, and petitioners were not
reimbursed. On the Schedule F accompanying their 2002 return,
petitioners claimed an $11,531 deduction relating to employee
benefits programs.
On February 17, 2006, respondent issued petitioners a notice
of deficiency and determined deficiencies relating to 2001 and
2002. Respondent determined that petitioners were not entitled
to deduct 100 percent of their medical expenses on Schedule F as
ordinary and necessary business expenses. Respondent did,
however, allow petitioners a deduction, pursuant to section
162(l), for 60 percent of the $4,978 health insurance premium
payments relating to 2001 and 70 percent of the $5,985 health
insurance premium payments relating to 2002.
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Last modified: March 27, 2008