During 2001, the year at issue, Mr. Albers employed Ms. Albers to, and she did, perform services for his farming business as provided in Ms. Albers's employment agreement. ³ During that year, Mr. Albers paid Ms. Albers monthly cash wages of $ 100 for those services, from which he withheld Social Security tax and Medicare tax totaling $ 7.65.

2007 Tax Ct. Memo LEXIS 146">*150 During 2001, Ms. Albers was also employed (1) in surgical tech training by Sioux Fall School District 49-5 at Southeast Vocational Technical School and (2) as a nurse assistant by Plastic Surgery Associates (Plastic Surgery Associates) of South Dakota, Ltd. During 2001, Plastic Surgery Associates provided health insurance to Ms. Albers that covered her but not Mr. Albers or their children.

On December 21, 1995, Mr. Albers signed a preprinted form that was an authorization to provide a medical reimbursement plan under AgriPlan through AgriBiz. The preprinted form on which that authorization appeared stated in pertinent part:

During 2001, pursuant to the authorization that he signed to provide a medical reimbursement plan under AgriPlan through AgriBiz, Mr. Albers provided such a plan (AgriPlan/AgriBiz medical reimbursement plan) for the benefit of Ms. Albers and her family.

On April 25, 2001, Mr. Albers completed a preprinted application form entitled "Application for Individual Health & Life Insurance" (Mr. Albers's Wellmark application). In that application, Mr. Albers applied to Wellmark/Blue Cross Blue Shield of South Dakota (Wellmark) for a so-called Blue Select health insurance policy to cover himself, Ms. Albers, and their dependent children. In Mr. Albers's Wellmark application, Mr. Albers identified himself as "Applicant", Ms. Albers as "Spouse", and each of their children as a "Dependent". The portion of Mr. Albers's application entitled "Enrollment Information" stated in pertinent part:

Wellmark approved Mr. Albers's Wellmark application and issued a health insurance policy to him (Mr. Albers's Wellmark health policy) that covered himself, his spouse Ms. Albers, and their dependent children. Premiums for Mr. Albers's Wellmark health policy were paid directly by petitioners by checks drawn on a joint checking account that petitioners maintained. ⁷

2007 Tax Ct. Memo LEXIS 146">*154 During 2001, petitioners paid directly to the medical and dental providers listed below the amounts shown for services provided on the dates indicated:

¹ The record does not disclose what "CLM" means.

The total of $ 4,606.58 that petitioners paid directly to medical and dental providers during 2001 was paid by the following methods: $ 3,708 was paid by checks signed by Mr. Albers and drawn on a joint checking account that petitioners maintained, $ 854 was paid by charging a credit card issued in the name of Peggy Albers, ⁸ and the balance was paid by a method not disclosed by the record.

2007 Tax Ct. Memo LEXIS 146">*155 Around December 27, 2001, Ms. Albers submitted to AgriPlan a request for reimbursement of medical expenses totaling $ 8,216. That submission consisted of a preprinted form entitled "Employee Benefit Expense Transmittal" (Ms. Albers's employee benefit expense form) that Ms. Albers had completed. That form, which Ms. Albers signed as employee and Mr. Albers signed as employer, stated in pertinent part:

READ, SIGN AND DATE

To the best of my [Ms. Albers] knowledge and belief, my statements in this transmittal are complete and true. I am claiming only eligible expenses incurred during the applicable plan year(s) and for eligible plan participants. I certify that any part or all of these expenses have not been reimbursed previously under this or any other benefit plan and have not been previously claimed as a tax deduction.

* * * *

The2007 Tax Ct. Memo LEXIS 146">*156 employee listed [Ms. Albers] is or has been an employee for a portion or all of this plan year. I [Mr. Albers] reviewed the expenses listed, and these expenses have or will be reimbursed by the employer pursuant to the plan.

* * * *

Section 3 Medical Expenses

* * * *

On April 15, 2002, petitioners filed Form 1040, U.S. Individual Income Tax Return, for their taxable year 2001. Petitioners' 2001 Schedule F pertained to Mr. Albers's farming business. In that schedule, petitioners claimed, inter alia, a deduction of $ 8,216 for expenses for "Employee benefit programs".

Respondent issued to petitioners a notice of deficiency (notice) for their taxable year 2001. In that notice, respondent2007 Tax Ct. Memo LEXIS 146">*158 determined to disallow the $ 8,216 deduction that petitioners claimed in petitioners' 2001 Schedule F for "Employee benefit programs" because "it has not been established that the deduction claimed qualifies as an ordinary and necessary business expense". In the notice that respondent issued to petitioners for their taxable year 2001, respondent also determined to allow petitioners a "Self-Employed Health Insurance Deduction" of $ 2,151 because "You are allowed an additional deduction for Self-Employed Health Insurance."

OPINION

The parties submitted this case fully stipulated under Rule 122. That the parties submitted this case under that Rule does not affect who has the burden of proof or the effect of a failure of proof. Rule 122(b); Borchers v. Commissioner, 95 T.C. 82">95 T.C. 82, 95 T.C. 82">91 (1990), affd. 943 F.2d 22">943 F.2d 22 (8th Cir. 1991).

The parties disagree over whether the burden of proof in this case shifts to respondent under section 7491(a). In order for the burden of proof to shift to the Commissioner of Internal Revenue under that section, the taxpayer must (1) provide credible evidence with respect to any factual issue relevant to determining the tax liability of2007 Tax Ct. Memo LEXIS 146">*159 the taxpayer and (2) comply with the applicable requirements of section 7491(a)(2). Although section 7491(a) does not define the term "credible evidence", the legislative history of the statute does. The legislative history of section 7491(a) provides in pertinent part:

Credible evidence is the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness). * * * The introduction of evidence will not meet this standard if the court is not convinced that it is worthy of belief. * * *

As discussed below, there are factual issues relevant to determining the tax liability of petitioners for the year at issue as to which petitioners have not introduced credible evidence within the meaning of section 7491(a)(1) and as to which the burden of proof does not shift to respondent under that section.

We turn now to whether petitioners are entitled to deduct under section 162(a) the $ 8,216 for "Employee benefit programs" claimed in2007 Tax Ct. Memo LEXIS 146">*160 petitioners' Schedule F. A taxpayer, including the owner of an unincorporated business like Mr. Albers, is entitled to deduct all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business, sec. 162(a), including any amount paid to an employee pursuant to an employee benefit plan for an expense that such employee pays or incurs. Sec. 162(a)(1); sec. 1.162-10, Income Tax Regs.¹³ However, a taxpayer, like Mr. Albers, who owns an unincorporated business is not entitled to deduct health insurance costs that he pays or incurs for himself, his spouse, and his dependents except as provided in section 162(l). ¹⁴

2007 Tax Ct. Memo LEXIS 146">*161 At the core of petitioners' position that the $ 8,216 for "Employee benefit programs" claimed in petitioners' Schedule F is deductible under section 162(a) are petitioners' contentions that:

(1) "The payment of medical expenses and insurance premiums were made on behalf [of] Peggy Albers, a bona fide employee of Darwin Albers's farm business, pursuant to a valid I.R.C. section 105(b) health plan [AgriPlan/ AgriBiz medical reimbursement plan]; therefore, Petitioners are entitled to deduct the reimbursements as an employee benefits program expense on their Schedule F";

(2) the claimed $ 3,586 of health insurance premiums "were paid directly on behalf of Peggy Albers, an employee, to reimburse her for the medical expense incurred by her spouse pursuant to the I.R.C. section 105(b) plan [AgriPlan/AgriBiz medical reimbursement plan]";

(3) "Peggy Albers requested that her employer pay for these out-of-pocket medical expenses [the claimed $ 4,630 of medical and dental expenses] * * * and the expenses were in turn paid directly by the employer, Darwin Albers"; and

(4) "There is no provision in I.R.C. section 1052007 Tax Ct. Memo LEXIS 146">*162 or the plan provided by Darwin Albers [the AgriPlan/AgriBiz medical reimbursement plan] that prohibits the employer from paying the medical expense directly to the provider rather than reimbursing the employee. In fact, I.R.C. section 105(b) explicitly provides that expenses can be paid, 'directly or indirectly,' to the employee to reimburse the employee for expenses incurred by her, her spouse or dependents for medical care."

In advancing the foregoing contentions, petitioners misunderstand and/or misstate the provisions of section 105(b). Section 105(b) on which petitioners rely provides in pertinent part:

SEC. 105. AMOUNTS RECEIVED UNDER ACCIDENT AND HEALTH PLANS.

* * * *

With respect to the claimed $ 3,586 of health insurance premiums for Mr. Albers's Wellmark health policy, the record establishes, and petitioners concede, ¹⁶ that Mr. Albers, the applicant and primary insured under that policy, incurred such premiums. With respect to the claimed $ 4,630 of medical and dental expenses, petitioners have failed2007 Tax Ct. Memo LEXIS 146">*164 to produce evidence, let alone credible evidence, see sec. 7491(a)(1), that establishes that Ms. Albers, and not Mr. Albers, incurred, or paid, $ 3,776 of such expenses. Although the record establishes that Ms. Albers charged to her credit card, and thus incurred, $ 854 of the claimed $ 4,630 of medical and dental expenses, petitioners have failed to produce evidence, let alone credible evidence, see sec. 7491(a)(1), that establishes that her employer Mr. Albers paid those charges on her behalf or that her employer Mr. Albers reimbursed her for her payment of those charges. ¹⁷

2007 Tax Ct. Memo LEXIS 146">*165 On the record before us, we find that petitioners have failed to establish that her employer Mr. Albers paid, directly or indirectly, to Ms. Albers pursuant to the AgriPlan/AgriBiz medical reimbursement plan the claimed $ 3,586 of health insurance premiums and the claimed $ 4,630 of medical and dental expenses to reimburse her for expenses that she incurred, or paid, for the medical care of herself, her spouse Mr. Albers, and/or her dependent children. See sec. 105(b). On that record, we further find that petitioners have failed to establish that any portion of such claimed premiums and such claimed expenses is an ordinary and necessary expense paid or incurred by Mr. Albers in carrying on his farming business. ¹⁸ See sec. 162(a); sec. 1.162-10, Income Tax Regs.

2007 Tax Ct. Memo LEXIS 146">*166 Based upon our examination of the entire record before us, we find that petitioners have failed to establish that they are entitled under section 162(a) to the $ 8,216 deduction for "Employee benefit programs" claimed in petitioners' Schedule F. ¹⁹

We have considered all of the parties' contentions and arguments that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.

To reflect the foregoing,

Decision will be entered for respondent.