118 T.C No. 29



                UNITED STATES TAX COURT



         FRANK AND BARBARA BIEHL, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 422-00.                    Filed May 30, 2002.



     Ps are H and W. H, a shareholder and former
employee of D Corp., filed suit with W, also a
shareholder of D, against D and its other shareholders
for wrongful termination of H’s employment and for
dissolution of D. Following a jury verdict of $2.1
million in favor of H on his wrongful termination claim,
Ps and D negotiated a global settlement under which D in
1996 paid a total of $1.2 million to settle H’s wrongful
termination claim, $799,000 to H and $401,000 to Ps’
attorney; D settled Ps’ dissolution claims by agreeing
to buy back Ps’ shares in D in an installment sale with
payments scheduled to begin in 1997. Ps did not report
or disclose on their 1996 joint income tax return the
$401,000 payment to their attorney, on the ground that D
made the payment pursuant to “a reimbursement or other
expense allowance arrangement” under I.R.C. sec.
62(a)(2)(A) and sec. 1.62-2, Income Tax Regs. R
determined that the payment to Ps’ attorney had to be
included in Ps’ gross income and did not qualify as paid
pursuant to an “accountable plan” under sec. 1.62-2,
                               - 2 -

    Income Tax Regs. R therefore determined that Ps were
    required to treat the payment as an itemized deduction,
    rather than a deduction in computing adjusted gross
    income. Such an itemized deduction is disallowed as a
    deduction under I.R.C. sec. 56(b)(1)(A)(i) in computing
    income subject to alternative minimum tax under I.R.C.
    sec. 55.
         Held: Amounts paid by a former employer to a
    former employee in settlement of his wrongful
    termination claim fail to satisfy the first requirement
    for an accountable plan, the “business connection”
    requirement of I.R.C. sec. 62(a)(2)(A) as set forth in
    sec. 1.62-2(d)(1), Income Tax Regs.; the payment to Ps’
    attorneys is included in Ps’ gross income and is treated
    as an itemized deduction.


     David M. Kirsch, for petitioners.

     Julie A. Fields, for respondent.



                              OPINION


     BEGHE, Judge:   This case is before the Court fully

stipulated under Rule 122.1   Respondent determined a deficiency

of $97,833 in petitioners’ 1996 Federal income tax.   The issue

for decision is whether petitioners may treat a certain

attorney’s fee as paid under “a reimbursement or other expense

allowance arrangement” as defined in section 62(a)(2)(A) and (c)

so as to be excluded from gross income or deducted in arriving at

adjusted gross income under section 62(a).   Respondent contends



     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the year at issue, unless otherwise
specified.
                              - 3 -

that the fee must be included in gross income and treated as a

miscellaneous itemized deduction from adjusted gross income,

subject to the 2-percent floor under section 67(a) and disallowed

as a deduction under section 56 in computing income subject to

the alternative minimum tax (AMT) under section 55.    We hold for

respondent that the fee must be treated as a miscellaneous

itemized deduction.

Background

     Petitioners Frank and Barbara Biehl (Mr. Biehl and Mrs.

Biehl) resided in San Jose, California, when they filed the

petition.

     Mr. Biehl was an employee, officer, shareholder, and

director of North Coast Medical, Inc. (NCMI), a manufacturer and

distributor of medical supplies.   Mrs. Biehl was also a

shareholder of NCMI.

     On December 6, 1990, petitioners entered into a

“shareholders agreement” with NCMI and its other shareholders.

The shareholders agreement provided, among other things, that,

for any suit brought for breach of the agreement, the prevailing

party would be entitled to recover all costs and expenses of the

suit, including attorney’s fees.

     The shareholders agreement was primarily concerned with the

imposition of restrictions and requirements regarding ownership

of the shares of NCMI, providing for, among other things,
                               - 4 -

restrictions on transfer, including maintenance of S election,

rights of first refusal, the effects of involuntary transfers,

legending shares, the status of transferees, and so on.     The

agreement recites that the parties intend that all present and

future individual shareholders, other than Mrs. Biehl and the

spouse of another shareholder employee, would be employees of the

corporation, but that nothing in the agreement is intended to

create or imply any obligation of NCMI to employ or continue to

employ any shareholder.

     In March 1994, petitioners filed an action in Santa Clara

County, California, Superior Court against NCMI and its other

shareholders.   Petitioners were represented by the law firm of

Olimpia, Whelan, & Lively.   Petitioners’ original fee agreement

dated May 31, 1994, required petitioners to pay Olimpia, Whelan,

& Lively an hourly fee for its services.   The second fee

agreement, dated January 25, 1996, changed the original hourly

fee agreement to a contingency fee agreement.   Under the terms of

the contingency fee agreement, petitioners agreed to pay Olimpia,

Whelan, & Lively one-third of all sums recovered.

     Petitioners’ action against NCMI included a claim for

wrongful termination of Mr. Biehl’s employment as vice president

and general manager of NCMI and a claim for dissolution of NCMI

that would have entitled petitioners to be paid for their shares
                                - 5 -

of NCMI.    Petitioners’ claims were bifurcated, and Mr. Biehl’s

wrongful termination claim was tried in March 1996.    The jury

returned a $2.1 million verdict in favor of Mr. Biehl.

     Following the verdict on the wrongful termination claim, and

without resolution by suit of petitioners’ claims for dissolution

of NCMI, petitioners and NCMI entered into negotiations looking

toward a global settlement.    On December 31, 1996, NCMI made two

payments:    $799,000 directly to Mr. Biehl and $401,000 directly

to Olimpia, Whelan, & Lively.    During January 1997, petitioners,

NCMI, and the other defendants signed and delivered a

“Confidential Settlement Agreement and Release of Claims”

(settlement agreement), which set forth the terms of the

settlement.    The settlement agreement stated that the foregoing

payments were made in settlement of Mr. Biehl’s employment-

related claims and in payment of attorney’s fees related to the

employment claims, respectively.    The settlement agreement does

not refer to NCMI’s payment of the attorney’s fee as a

reimbursement to Mr. Biehl.

     The settlement agreement resolved petitioners’ dissolution

claim by incorporating a stipulation for entry of judgment.    The

stipulation provided that the defendants would purchase

petitioners’ stock in NCMI for $1.2 million in an installment

sale in final settlement of the corporate dissolution claim.

Monthly payments on the installment sale were to begin on January
                                - 6 -

31, 1997, and continue for 143 months until December 31, 2008.

The defendants were required to pay petitioners $13,321 each

month, which included interest at the rate of 8-1/2 percent per

year, calculated from December 31, 1996.    If the defendants

failed to comply with the stipulation, judgment would be entered

in favor of petitioners for the unpaid balance of the purchase

price, with interest, and petitioners’ reasonable attorney’s

fees.

     NCMI issued a Form 1099 to Mr. Biehl showing $1.2 million

paid to him in 1996.    On October 16, 1997, petitioners filed a

motion in Santa Clara County Superior Court to enforce the

settlement agreement.    Petitioners alleged that NCMI violated the

settlement agreement by issuing one Form 1099 to Mr. Biehl for

$1.2 million, rather than two Forms 1099, one to Mr. Biehl for

$799,000 and one to Olimpia, Whelan,& Lively for $401,000.

Petitioners’ motion to enforce the settlement agreement states

that the income tax consequences of the settlement were a major

concern to Mr. Biehl in the settlement negotiations, and that he

had been satisfied with the settlement agreement because it

required NCMI to pay the attorney’s fee directly to Olimpia,

Whelan, & Lively.   Mr. Biehl’s stated concern was that if NCMI

issued a single Form 1099, he would have to include $1.2 million

as his income from the settlement, versus $799,000 had NCMI

issued two Forms 1099.    According to the motion, the tax
                               - 7 -

treatment to NCMI would be the same whether it issued one Form

1099 or two Forms 1099; in either case NCMI would have a

deductible expense of $1.2 million.    The Superior Court granted

the motion, but the record does not indicate whether one or two

Forms 1099 were actually filed with respondent.

     On their Form 1040, U.S. Individual Income Tax Return, for

1996, petitioners included in gross income the $799,000 NCMI

directly paid to Mr. Biehl but did not report or disclose the

$401,000 payment to Olimpia, Whelan, & Lively.    Respondent

determined in the statutory notice that petitioners should have

also included in gross income and adjusted gross income the

$401,000 that NCMI paid directly to their attorneys.

Respondent’s explanation of adjustments in the statutory notice

of deficiency goes on to state:   “Alternatively, if it is

determined this income constitutes reimbursement, such

reimbursement was made under a nonaccountable plan and is

includible in gross income.”   Respondent determined that in

either case petitioners would be entitled to a $401,000

miscellaneous itemized deduction from adjusted gross income.

Accordingly, respondent determined the deficiency in issue of

$97,833, primarily attributable to the AMT liability under

section 55 resulting from disallowance of the itemized deduction

under section 56(b)(1)(A)(i) in computing alternative minimum

taxable income.
                               - 8 -

Discussion

     This is yet another case in which a taxpayer who

successfully prosecuted a wrongful termination claim against his

former employer, obtaining a taxable recovery, has attempted to

avoid treating as an itemized deduction from adjusted gross

income the attorney’s fee paid to his attorney under their

contingent fee agreement.   It is clear under the jurisprudence of

the Tax Court, and the Court of Appeals for the Ninth Circuit, to

which this case would be appealable, that such a fee is not

excluded from gross income under the “common law” of taxation.2

Petitioners have therefore chosen another tack on which there is

no authority on point in the Ninth Circuit:   that the fee was




     2
      See Kenseth v. Commissioner, 

(2000), affd. 

(7th Cir. 2001); Banaitis v. Commissioner, T.C. Memo.
2002-5; Freeman v. Commissioner, T.C. Memo. 2001-254; Banks v.
Commissioner, T.C. Memo. 2001-48. Compare Srivastava v.
Commissioner, 

(5th Cir. 2000), revg. in part, affg.
in part, and remanding T.C. Memo. 1998-362; Davis v.
Commissioner, 

(11th Cir. 2000), affg. T.C. Memo.
1998-248; Estate of Clarks v. United States, 

(6th
Cir. 2000); Cotnam v. Commissioner, 

(5th Cir. 1959),
revg. in part 

(1957), with Sinyard v. Commissioner,

(9th Cir. 2001), affg. T.C. Memo. 1998-364; Benci-
Woodward v. Commissioner, 

, 943 (9th Cir. 2000),
affg. T.C. Memo. 1998-395; Coady v. Commissioner, 

(9th Cir. 2000), affg. T.C. Memo. 1998-291; Brewer v.
Commissioner, T.C. Memo. 1997-542, affd. without published
opinion 

(9th Cir. 1999); Martinez v. Commissioner,
T.C. Memo. 1997-126, affd. without published opinion 

(9th Cir. 1998); Fredrickson v. Commissioner, T.C. Memo. 1997-
125, affd. without published opinion 

(9th Cir.
1998).
                              - 9 -

paid by NCMI to petitioners’ attorney under a “reimbursement or

other expense allowance arrangement” under section 62(a)(2)(A)

and (c).3

     If petitioners’ argument should succeed, petitioners’ return

treatment, in which they did not include in gross income or even

disclose NCMI’s $401,000 payment to Olimpia, Whelan, & Lively,

would be vindicated; petitioners would not even be required to

include the payment in gross income and claim a deduction in

arriving at adjusted gross income under section 62(a)(2)(A)–-the

payment would be excluded from Mr. Biehl’s gross income as having

been paid pursuant to an “accountable plan”, as defined in

section 1.62-2, Income Tax Regs.

     For the reasons discussed below, we hold that Mr. Biehl’s

attorney’s fee was not paid under an employee reimbursement or

other expense allowance arrangement under section 62(a)(2)(A) and

(c); the statutory language, the regulations implementing these

provisions, legislative history explaining them, and caselaw show

that attorney’s fees of former employees in wrongful termination

cases against their former employers do not qualify as having

been paid under such an arrangement.   The attorney’s fee does not



     3
       See Brenner v. Commissioner, T.C. Memo. 2001-127 (taxpayer
failed to substantiate his expenses to his former employer as
required by sec. 1.62-2(e), Income Tax Regs.); Alexander v.
Commissioner, T.C. Memo. 1995-51 (taxpayer did not prove that
payment was made under a reimbursement arrangement with his
former employer), affd. 

(1st Cir. 1995).
                             - 10 -

satisfy the “business connection” requirement of section

62(a)(2)(A) and its 1939 Code predecessor, as that requirement

has been interpreted and continues to be applied.

     Statutory Framework

     Section 62 is entitled “Adjusted Gross Income Defined.”4


     4
      The concept of “adjusted gross income” was introduced to
the Federal income tax by sec. 22(n) of the 1939 Code, enacted by
sec. 8(a) of the Individual Income Tax Act of 1944, ch. 210, 58
Stat. 235, as part of a package to increase revenues to finance
the war effort. The package included an increase in marginal
rates which reached their highest historical level with the 1944
Act; also between 1939 and 1945, the personal exemption was cut
in half, from $1,000 to $500, to extend the reach of the Federal
income tax to more taxpayers. The 1944 Act introduced the
concept of “adjusted gross income” to implement the newly created
standard deduction, which was designed to simplify the return-
filing process for the majority of new taxpayers and ease the
administrative burden of examining the resulting increased number
of tax returns.

     The standard deduction simplified the process by providing
individuals the option of deducting a fixed statutory estimate of
their deductible nonbusiness expenses in lieu of itemizing each
expense they incurred. The concept of adjusted gross income was
incorporated into the Internal Revenue Code to provide, before
the deduction of nonbusiness expenses, an income base to which
the standard deduction would be applied. Adjusted gross income
is supposed to be a rough estimate of amounts that a taxpayer has
to pay for his nonbusiness expenses. When a taxpayer has
determined how much income is available for his nonbusiness
expenses, he may decide whether to account for his deductible
nonbusiness expenses by claiming the standard deduction or by
itemizing his expenses.

     Under sec. 22(n)(1) of the 1939 Code and its successor in
subsequent Codes, sec. 62(a)(1), business owners, partners in
firms, and independent contractors could deduct all their
business expenses from gross income in arriving at adjusted gross
income without limitation and then either avail themselves of the
standard deduction or itemize their nonbusiness expenses. Under
sec. 22(n)(2) and (3) of the 1939 Code, as enacted by the 1944
                                                   (continued...)
                              - 11 -

Section 62(a) defines the adjusted gross income of an individual

as gross income minus deductions enumerated in the paragraphs

that follow.   Paragraphs (1) (entitled “Trade and Business

Deductions”--without limitation) and (2) (entitled “Certain Trade

and Business Deductions of Employees” (emphasis added)) give

effect to a longstanding disparity in treatment between (1)

business owners, partners in firms, and independent contractors,

and (2) employees.5   The former are favored under paragraph (1)


     4
      (...continued)
Act, employees, irrespective of whether they itemized their
deductions or claimed the standard deduction, were entitled to
deduct, in arriving at adjusted gross income, only-–under par.
(2)–-“expenses of travel, meals, and lodging paid or incurred by
the taxpayer while away from home in connection with the
performance by him of services as an employee” and–-under par.
(3)-–“other than expenses * * * under a reimbursement or other
expense-allowance arrangement with his employer”. See H. Rept.
1365, 78th Cong., 2d Sess. (1944), 1944 C.B. 821, 838-839.
     5
      In the area under consideration, the deductibility of
attorney’s fees incurred in prosecuting unlawful termination
claims, the disparity between sec. 62(a)(1) and (2)(A), and the
corresponding limitations on itemized expenses and liability for
the AMT of former employees are illustrated by Guill v.
Commissioner, 

(1999), and Kenseth v. Commissioner,

(2000), affd. 

(7th Cir. 2001). In
Guill v. Commissioner, supra at 329-330, an independent
contractor former insurance agent’s attorney’s fee of $151,896,
incurred in prosecuting his civil action against the insurance
company that fired him, were held to be deductible from gross
income in arriving at adjusted gross income pursuant to sec.
62(a)(1). Conversely, in Kenseth v. Commissioner, supra at 407-
408, the taxpayer’s attorney’s fee of $91,800 in connection with
a Federal age discrimination claim against his former employer,
did not reduce his gross income from the recovery and were
instead found to be allowable only as an itemized deduction from
adjusted gross income. The results from the differing treatments
are striking: the taxpayer in Guill enjoyed the full tax benefit
                                                   (continued...)
                              - 12 -

by being allowed to deduct all expenses “attributable to a trade

or business carried on by” them in computing their adjusted gross

income; these expenses are coextensive with all the trade or

business expenses they are entitled to deduct under section

162(a).   Employees, on the other hand, are allowed by paragraph

(2) to deduct only a very restricted category of their trade or

business expenses in computing adjusted gross income.   In

addition, these expenses must be “in connection with” the

employee’s rendering of services to the employer.

     Paragraph (2)(A) of section 62(a),6 entitled “Reimbursed

expenses of employees”, provides that a taxpayer is allowed a

deduction from gross income in arriving at adjusted gross income

for “The deductions allowed by part VI (section 161 and

following) which consist of expenses paid or incurred by the

taxpayer, in connection with the performance by him of services

as an employee, under a reimbursement or other expense allowance



     5
      (...continued)
of a $151,896 deduction, whereas the taxpayer in Kenseth had his
deduction of $91,800 reduced by $5,298 under sec. 67 and phased
out to the extent of $4,694 under sec. 68 and was subject to an
AMT liability of $17,198 as a result of the disallowance of the
miscellaneous itemized deduction for AMT purposes under sec.
56(b)(1)(A)(i).
     6
      Sec. 62(a)(2)(B) and (C) eases the restrictions for two
narrow classes of employees. Performing artists who meet the
requirements of sec. 62(b) and employees of a State or a
political subdivision are allowed to deduct all their otherwise
allowable trade or business expenses from gross income in
arriving at adjusted gross income.
                              - 13 -

arrangement[7] with his employer.”   Sec. 62(a)(2)(A).   This

language incorporates and illustrates a general proposition that

applies across the board to section 62(a) and also highlights

theadditional specific restrictions to which employees are



     7
      Sec. 62(a)(2)(A) and its statutory predecessors do not
contain and have never contained a definition of the term
“arrangement”. However, the regulations under sec. 62(c) treat
the terms “arrangement” and “plan” as synonymous. Sec. 1.62-
2(k), Income Tax Regs., provides that if “a payor’s reimbursement
or other expense allowance arrangement evidences a pattern of
abuse of the rules of section 62(c) and this section, all
payments made under the arrangement will be treated as made under
a nonaccountable plan.”

     Dictionary definitions of the terms “arrangement” and “plan”
are helpful, although not dispositive, in indicating that the
terms encompass a continuing relationship, rather than a one-shot
payment of the type at issue in the case at hand. The primary
definition of “arrangement” in Webster’s New Universal Unabridged
Dictionary 103 (2d ed. 1979) as “the act of putting in proper
order; also, the state of being put in order” implies two or more
elements. The use of the term in bankruptcy arrangements has
multiple elements encompassing multiple creditors of the debtor
whose affairs are arranged and a variety of terms and provisions
regarding the payment or provisions for payment of his debts.
Similarly the dictionary definitions of “plan”, 

as
“a scheme for making, doing, or arranging something; a project; a
program; a schedule”, encompass or imply multiple elements for
accomplishing something over a period of time.

     The law of Federal preemption under the Employee Retirement
Income Security Act of 1974 (ERISA), Pub. L. 93-406, 88 Stat.
829, is in accord. See Fort Halifax Packing Co. v. Coyne, 

(1987) (Maine statute requiring employers to provide one-
time severance payment to employees terminated in event of plant
closing not preempted by ERISA, which was intended to afford
employers uniform administrative procedures governed by Federal
regulations; ERISA concern arises only with respect to benefits
whose provision requires ongoing administrative program to meet
employer’s obligations; thus Congress intended to preempt State
laws relating to plans, rather than those simply relating to
benefits).
                              - 14 -

subject, as compared with business owners, partners in firms, and

independent contractors.

     The general proposition is that a deduction is allowed under

section 62(a) only if it is allowable under some other provision

of the Internal Revenue Code (Code).   Section 62(a) merely

enumerates the deductions allowed an individual in computing

adjusted gross income; it does not create any new or additional

deductions that are not already provided for by some other

section of the Code.   See sec. 1.62-1T(b), Temporary Income Tax

Regs., 53 Fed. Reg. 9873 (Mar. 28, 1988).    In the case of

paragraphs (1) and (2)(A) of section 62(a), the allowable

deduction already provided under another section of the Code is

the general provision for the deductibility of trade or business

expenses found in section 162(a).

     The specific restriction to which employees are subject

under section 62(a)(2)(A) is that their deductions allowed in

computing adjusted gross income are restricted to those expenses

paid or incurred “in connection with the performance by him of

services as an employee, under a reimbursement or other expense

allowance arrangement with his employer.”8   This language sets


     8
      Before 1986, sec. 62(2)(B) allowed employees to deduct from
gross income in arriving at adjusted gross income travel expenses
while away from home, transportation expenses, and expenses
incurred by “outside salesmen” engaged in soliciting business for
the employer’s place of business. Sec. 62(2)(B), (C), and (D),
I.R.C. 1954. As a result of the enactment of the Tax Reform Act
                                                   (continued...)
                             - 15 -

forth the “business connection” requirement, discussed below, and

is in contrast to the loosely interpreted “attributable to a

trade or business” language of section 62(a)(1) that applies to

business owners, partners in firms, and independent contractors.

     The scope of section 62(a)(2)(A) is further restricted by

section 62(c), as enacted by the Family Support Act of 1988, Pub.

L. 100-485, sec. 702, 102 Stat. 2426, effective for tax years

beginning after December 31, 1988.    Under section 62(c)(1) and

(2), an employee business expense will be treated as covered by a

“reimbursement or other expense allowance arrangement” only if

the employee is required (1) “to substantiate the expenses

covered by the arrangement to the person providing the

reimbursement” and (2) to repay the person providing the

reimbursement amounts received in “excess of the substantiated

expenses covered under the arrangement.”    To satisfy section

62(c), the arrangement must be provided under an “accountable

plan” as set forth in the regulations issued to implement section

62(c).




     8
      (...continued)
of 1986, Pub. L. 99-514, sec. 132(b)(1), 100 Stat. 2115, and the
Family Support Act of 1988, Pub. L. 100-485, sec. 702, 102 Stat.
2426, these employee expenses must satisfy the requirements of
sec. 62(a)(2)(A) and (c) of present law regarding reimbursement
arrangements and accountable plans.
                               - 16 -

     Regulatory Framework

     The first requirement for an accountable plan is that the

expense must be allowed as a deduction under section 162(a).

Sec. 1.62-2(d), Income Tax Regs.; see also sec. 62(a)(2)(A).      If

an expense satisfies this threshold requirement, it must be

scrutinized under the regulations implementing section 62(c) to

determine whether it was paid under a plan that qualifies as a

“reimbursement or other expense allowance arrangement”.    Sec.

1.62-2(c), Income Tax Regs.    Under section 1.62-2(c)(1), Income

Tax Regs., a deductible expense is paid under a qualifying

“reimbursement or other expense allowance arrangement” if the

arrangement meets the requirements of paragraph (d) (which

incorporates the business connection requirement of section

62(a)(2)(A) into the regulations implementing section 62(c)), and

paragraphs (e) and (f) (which implement the substantiation and

return of excess requirements of section 62(c)).    Sec. 1.62-

2(c)(2)(i), Income Tax Regs.   If the “reimbursement or other

expense allowance arrangement” meets these requirements, it

qualifies as an “accountable plan”.     Sec. 1.62-2(c)(2)(i), (4),

Income Tax Regs.

     Section 1.62-2, Income Tax Regs., simplifies employees’

reporting requirements by providing that amounts paid under an

accountable plan are excluded from the employee’s gross income,

are not reported as wages or other compensation on Form W-2, Wage
                              - 17 -

and Tax Statement, and are exempt from withholding and payment of

employment taxes.   Sec. 1.62-2(c)(4), Income Tax Regs.9

     On the other hand, the regulations provide that amounts paid

to an employee under a nonaccountable plan, one that does not

meet all three requirements for an accountable plan, are reported

as wages or other compensation on the employee’s Form W-2 and are

subject to withholding and payment of employment taxes.    Sec.

1.62-2(c)(5), Income Tax Regs.   As a result, the burden of




     9
        This is consistent with prior law, beginning in 1958,
under which employees were not required to report amounts
received as reimbursements for “travel, transportation,
entertainment, and similar purposes paid or incurred by him
solely for the benefit of his employer”. Sec. 1.162-17(b)(1),
Income Tax Regs. Before 1958, employees were technically
required to include in gross income amounts received as
reimbursement and claim a corresponding deduction in arriving at
adjusted gross income, resulting in a wash. See Stanley &
Kilcullen, The Federal Income Tax, A Guide to the Law 25 (3d ed.
1955), 54 (2d ed. 1951). Under the regulations, the reimbursed
amount was not treated as wages and therefore not subject to any
withholding. See sec. 31.3121(a)-1(1), Employment Tax Regs.
(1956).

     Under current law, amounts paid under accountable plans are
excluded from gross income as working condition fringe benefits
under sec. 132(a)(3) and (d). See sec. 1.62-1T(e)(5), Temporary
Income Tax Regs., 53 Fed. Reg. 9874 (Mar. 28, 1988). The
regulations on working condition fringe benefits under sec. 132
track the requirements of the accountable plan regulations under
sec. 62(c), providing that a cash payment made by an employer
will not qualify as a working condition fringe benefit unless the
employer requires the employee to use the payment for “expenses
in connection with a specific or pre-arranged activity or
undertaking for which a deduction is allowable under section 162
or 167", verify that the payment was used for such expenses, and
return to the employer any part of the payment not so used. Sec.
1.132-5(a)(1)(v), Income Tax Regs.; see also infra note 12.
                             - 18 -

substantiating the deductibility of the expenses is placed on the

employee.   

fees and costs incurred in a wrongful

termination suit against a former employer do not meet the first

requirement for an accountable plan, the “business connection”

requirement of section 62(a)(2)(A), as incorporated in section

1.62-2(d)(1), Income Tax Regs.   Because we hold that Mr. Biehl’s

attorney’s fee does not satisfy the business connection

requirement, we need not reach whether it satisfies the

substantiation and return of excess requirements of paragraphs

(e) and (f) of the accountable plan regulations.10

     Threshold Requirement for Accountable Plan:     Deductible
     Expense

     The threshold requirement for deducting any expense from

gross income in computing adjusted gross income under section

62(a) is that the expense be allowed as a deduction under some


     10
      In Shotgun Delivery, Inc. v. United States, 

,
972 & n.2 (9th Cir. 2001), the Court of Appeals observed:

          The district court concluded that Shotgun had
     failed to establish an adequate business connection for
     its reimbursement 

.
     This conclusion lies at the core of the summary
     judgment against Shotgun and is the primary bone of
     contention on appeal.2 * * *
     2
          The district court also held that Shotgun had not
     complied with the “return of excess” 

. We have no need to review that
     determination, as the lack of an adequate “business
     connection” is sufficient to invalidate Shotgun’s
     reimbursement plan.
                              - 19 -

other section of the Code.   For an expense to qualify as being

paid under an accountable plan, it must be allowed as a deduction

under section 162(a).   Sec. 1.62-2(d), Income Tax Regs.

     Mr. Biehl’s attorney’s fee satisfies the threshold

requirement of deductibility under section 162(a).   It is well

settled that the costs of a former employee’s prosecution of a

wrongful termination claim are deductible by him as a trade or

business expense under section 162(a).   McKay v. Commissioner,

, 489 (1994), vacated and remanded on another issue

(5th Cir. 1996); Alexander v. Commissioner, T.C.

Memo. 1995-51, affd. 

(1st Cir. 1995).    Section 162(a)

allows a deduction for ordinary and necessary expenses incurred

in the course of carrying on a trade or business.    A taxpayer may

engage in the trade or business of “being an employee”.     O’Malley

v. Commissioner, 

, 363-364 (1988).

     In McKay v. Commissioner, supra at 489, we concluded that a

former employee’s attorney’s fees in a suit against his former

employer were “incurred in the course of carrying on * * * [the

taxpayer’s] trade or business” as an employee.   Our conclusion

was based on the fact that the transaction subject to the

litigation “arose in the context of the taxpayer’s trade or

business”.   

n.23; see also Alexander v. Commissioner,

supra.
                               - 20 -

     The attorney’s fee Mr. Biehl incurred is deductible under

section 162(a).   Mr. Biehl was in the trade or business of being

an employee of NCMI, and the transaction that was the subject of

the lawsuit, NCMI’s termination of his employment, arose in the

context of Mr. Biehl’s trade or business.   The attorney’s fee

NCMI paid to Mr. Biehl’s attorney satisfies the threshold

requirement of section 62(a), that the fee be deductible under

section 162(a).   We therefore must scrutinize the attorney’s fee

under the business connection requirement of section 62(a)(2)(A)

and the accountable plan regulations.

     Business Connection Requirement

     A deductible expense satisfies the business connection

requirement only if it was “paid or incurred by the employee in

connection with the performance of services as an employee of the

employer.”11   Sec. 1.62-2(d)(1), Income Tax Regs.; see also sec.


     11
      We note that in Brenner v. Commissioner, T.C. Memo. 2001-
127, we stated that expenses that “arose out of * * * [the
taxpayer’s] prior employment” satisfied the business connection
requirement. That conclusory statement was obviously not
intended to be a complete expression of the business connection
requirement and the conditions for its satisfaction. Our
statement was merely one of a series of assumptions by the Court
in order to decide whether the taxpayer properly substantiated
his expenses to his former employer. The statement was dictum
because the Court had previously stated, in setting forth the
basis on which it was deciding the case:

          We shall deal first with the question of whether
     * * * [the employer] reimbursed the legal fees
     pursuant to, and in accordance with, Article XIII.
     Since, as we shall explain, we cannot make that
                                                   (continued...)
                                - 21 -

62(a)(2)(A).     Mr. Biehl’s attorney’s fee fails to satisfy the

business connection requirement.     An expense satisfies the

business connection requirement only if it was incurred pursuant

to a reimbursement arrangement by an employee performing services

on behalf of the employer who is required to provide the

reimbursement.     Our conclusion is required by the express

language of section 62(a)(1) and (2)(A), the accountable plan

regulations, the caselaw, and the legislative history of

reimbursement arrangements.

     Section 62(a)(1) allows taxpayers to deduct from gross

income in arriving at adjusted gross income those “deductions

* * * which are attributable to a trade or business carried on by

the taxpayer, if such trade or business does not consist of the

performance of services by the taxpayer as an employee.”       An

expense is “attributable to a trade or business” if the expense

satisfies the origin of the claim test for the purposes of

deductibility.

     The difference in the ways in which paragraphs (1) and

(2)(A) of section 62(a) are interpreted is highlighted by Guill

v. Commissioner, 

(1999).     An independent contractor

former insurance agent incurred legal costs of $151,896 in

prosecuting his civil action for actual and punitive damages


     11
      (...continued)
     finding, we need not consider in any detail the
     remaining required findings * * *
                              - 22 -

against the insurance company that had fired him.   The taxpayer

recovered $51,499 in actual damages and $250,000 in punitive

damages.   The Commissioner conceded that the legal costs were a

business expense deductible on Schedule C, Profit or Loss From

Business, in computing adjusted gross income to the extent

attributable to the taxpayer’s recovery of the actual damages.

However, the Commissioner determined that the punitive damages

were “other income”, and that the remaining legal costs were a

nonbusiness itemized deduction under section 212(1) for the

production of income because they were attributable to the

taxpayer’s recovery of the punitive damages.

     We held for the taxpayer, reasoning that the punitive

damages were ancillary to the actual damages under South Carolina

law, and that the attorney’s fees attributable to the punitive

damages recovery were sufficiently related; that is,

“attributable to” the taxpayer’s sole proprietor insurance

business to be deductible by him under section 162(a):

     As a matter of fact, petitioner’s lawsuit against
     Academy arose entirely from his insurance business.
     Each cause of action petitioner alleged in the lawsuit
     was spawned entirely from the fact that, after Academy
     fired him, it failed to honor the terms of their
     working agreement by not paying him the commissions to
     which he was entitled under their agreement. * * * [Id.
     at 329-330.]

As a result, we held that all the taxpayer’s legal costs were

“attributable to” his trade or business and were deductible on
                                - 23 -

Schedule C as a business expense in arriving at adjusted gross

income.   See also McKay v. Commissioner, supra at 492.

     Section 62(a)(2)(A), in contrast to section 62(a)(1), allows

taxpayers to deduct from gross income in computing adjusted gross

income deductible expenses that are “incurred by the taxpayer, in

connection with the performance by him of services as an

employee”.    The proper inquiry in deciding whether an expense has

a “business connection” is what the expenditure was “in

connection with”, and not simply whether the expenditure arose

from, or had its origins in, the taxpayer’s trade or business.

     At current count, the phrase “in connection with” appears

288 times in the Code.   There is a body of caselaw following and

relying on Snow v. Commissioner, 

, 503-504 (1974),

that has interpreted the phrase broadly.      In Snow, the Supreme

Court considered “in connection with” in the context of section

174(a)(1), which allows a taxpayer a deduction for “‘experimental

expenditures which are paid * * * in connection with his trade or

business’”.    

  The Court compared section 174(a)(1) to

section 162(a), which allows a deduction for expenses paid “in

carrying on a trade or business”.      The Court found section 162(a)

to be “more narrowly written” than the “in connection” language

of section 174(a)(1).    

    The Court held that section

174(a)(1) allowed a deduction even though the taxpayer had not

been engaged in a trade or business in the year in which the
                              - 24 -

deductions were claimed.   The Court supported its holding by

consulting the legislative history of section 174 and concluding

that Congress intended to level the playing field “between old

and oncoming businesses and the like.”     

     In Huntsman v. Commissioner, 

, 1184 (8th Cir.

1990), revg. 

(1988), the Court of Appeals for the

Eighth Circuit considered section 461(g)(2), which allows a

deduction for points paid “in connection with the purchase or

improvement” of the taxpayer’s principal residence.      The issue in

Huntsman was whether a taxpayer who purchased a home with a

short-term 3-year loan secured by a mortgage, and replaced the

short-term obligation with a permanent loan could deduct the

points paid on the permanent loan.     The Court of Appeals relied

on Snow, to give “in connection with” a broad construction that

would allow the deduction.   Specifically, the Court of Appeals

held that the short-term financing was “an integrated step in

securing the permanent * * * [loan] to purchase the home”,

adopting the reasoning of Judge Ruwe’s dissent in the Tax Court.

Huntsman v. Commissioner, supra at 1185.     The Court of Appeals

emphasized that the taxpayers did not refinance their existing

debt to lower their interest rate or achieve some goal not

“directly” connected with home ownership.     

     In Fort Howard Corp. v. Commissioner, 

, 351

(1994), superseded by legislation and supplemented 

                                - 25 -

(1996), the Court analyzed section 162(k) which, at the time,

prohibited deductions for amounts paid by a corporation “in

connection with the redemption of its stock”.    The issue before

the Court was whether the costs incurred in obtaining debt

financing to complete a leveraged buyout that was treated as a

redemption were “in connection with” the corporation’s redemption

of its stock and therefore nondeductible under section 162(k).

Relying on Snow and Huntsman, we interpreted “in connection with”

broadly to mean “associated with, or related”.     

We

confirmed our reading by consulting the legislative history of

section 162(k), which expressly stated that “in connection with”

was intended to be construed broadly.     

  In applying

the broad interpretation, we found that much of the evidence

referred to the debt financing as “necessary” to the transaction.

 

   In addition, the taxpayer’s payment of financing

costs, its receipt of the debt capital, and the redemption were

events in a continuum that culminated in the redemption.      

   Similarly to the Court of Appeals for the Eighth Circuit in

Huntsman, we found the financing costs were an “integral part” of

a detailed plan.    

that the financing costs were

both a cause and effect of the leveraged buyout (the redemption).

authorities obviously support a broad reading

of “in connection with”, but that is by no means a reading
                              - 26 -

without limits.   The cases acknowledge as much by articulating

the bounds of the phrase.   Specifically, Fort Howard Corp. v.

Commissioner, supra at 353, and Huntsman v. Commissioner, supra

at 1185, found a “connection” existed when the expenditure at

issue was “integrated” or “integral to” that to which it is

allegedly connected.

     In the context of reimbursement arrangements, the statute,

cases, regulations, and legislative history compel the conclusion

that legal fees incurred by former employees are not “integrated”

with or “integral to” the performance of services as an employee

of the employer and therefore fall outside the broad scope of “in

connection with”.   The teaching of these authorities is that a

reimbursed expense can be “in connection with” the performance of

services as an employee only if it is incurred by an employee on

behalf of the employer that is providing the reimbursement.

     The business connection requirement of section 62(a)(2)(A)

was incorporated into the regulations implementing section 62(c)

by section 1.62-2(d), Income Tax Regs.   Under section 1.62-2(d),

Income Tax Regs., a deductible expense has a business connection

if it is “incurred by the employee in connection with the

performance of services as an employee of the employer.”

(Emphasis added.)   The emphasized language clarifies that the

expense must be incurred in the course of a current employer-

employee relationship, not merely “spawned” by or have its origin
                              - 27 -

in the taxpayer’s former trade or business of being an employee

of his former employer.12

     It is a well-settled axiom that the touchstone of the

employer-employee relationship is the employer’s dominion and

control over, or right to control, the services performed by the

employee.   Nationwide Mut. Ins. Co. v. Darden, 

(1992); Gen. Inv. Corp. v. United States, 

, 341 (9th

Cir. 1987).   That touchstone is missing when the expense is

incurred after the relationship has ended.   If the former

employee is no longer under the dominion and control of the

former employer, the expense cannot be properly characterized as

having been “paid or incurred by the employee in connection with

the performance of services as an employee of the employer.”    In

such a case, as in the case at hand, the expense has a

“connection” to the employee’s performance of services only in

the attenuated or remote sense that the expense can be considered

to relate back to, or to have arisen from, the employment

relationship.



     12
      Property or services provided to an employee of the
employer are excluded from gross income as a working condition
fringe benefit under sec. 132(a)(3) to the extent that, if the
employee paid for such property or services, the payment would be
allowed as a deduction under sec. 162. See sec. 132(d). The
regulations under sec. 132 explicitly give “employee” the meaning
we find implicit in sec. 62(a)(2)(A): an “employee” for purposes
of sec. 132(a)(3), concerning working condition fringe benefits,
is “Any individual who is currently employed by the employer.”
Sec. 1.132-1(b)(2)(i), Income Tax Regs.
                              - 28 -

      The caselaw involving reimbursement arrangements in

continuing employment relationships is consistent with this

interpretation.   In Shotgun Delivery, Inc. v. United States, 

, 972 (9th Cir. 2001), the Court of Appeals for the Ninth

Circuit characterized reimbursable expenses under an accountable

plan as those that “have a ‘business connection,’ that is, only

permitted expenses that employees actually incur or are

‘reasonably expected to incur’ in connection with their

employment duties” (quoting section 1.62-2(d), Income Tax Regs.).

The quoted language presupposes the existence of an employer-

employee relationship when the expense is incurred and indicates

that the expense must be “in connection with” the performance of

the regular services for which the employee is employed.

      The jurisprudence of this Court is in accord with the view

expressed by the Court of Appeals for the Ninth Circuit.    In

Rietzke v. Commissioner, 

, 453 (1963), we held that

“Only amounts received from an employer which are actually

expended for the employer’s business or for business purposes

designated by the employer may be deducted from the gross income

of the employee” under a reimbursement arrangement under section

62.   To make this showing, we required the taxpayer to come

forward with proof that he incurred expenses “on behalf” of his

employer.   Id.; see also Price v. Commissioner, T.C. Memo. 1971-

323 (describing expenses qualifying for section 62(a)(2)(A) as
                              - 29 -

those incurred on behalf of the employer under a reimbursement

arrangement with that employer); Lickert v. Commissioner, T.C.

Memo. 1964-47 (inquiring into whether the expenditures were

incurred on behalf of the employer’s business).

     The conclusion that the expense must be incurred “in

connection with” the duties performed by “an employee of the

employer” is also confirmed by the legislative history of

reimbursement arrangements.   The predecessor of section

62(a)(2)(A) was section 22(n)(3) of the 1939 Code, as amended by

the Individual Income Tax Act of 1944, ch. 210, 58 Stat. 235.    In

the House report, Congress described as an example of the kinds

of expenses a taxpayer could deduct from gross income under

section 22(n)(3) those incurred “for his employer”.   H. Rept.

1365, 78th Cong., 2d Sess. (1944), 1944 C.B. 821, 838-839

(emphasis added).

     Similarly, in describing a technical amendment to section

62(a)(2)(A) by the Technical and Miscellaneous Revenue Act of

1988, Pub. L. 100-647, 102 Stat. 3342, the Senate report

described the qualifying expenses under a reimbursement

arrangement as those incurred “on behalf of the employer”.

S. Rept. 100-445, at 7 (1988) (emphasis added).

     Finally, the conference report accompanying enactment of

section 62(c) describes a “true reimbursement” as one in which

the employee is reimbursed for “business expenditures incurred on
                              - 30 -

the employer’s behalf and for the employer’s benefit.”    H. Conf.

Rept. 100-998, at 203 (1988) (emphasis added).    “[I]n effect the

employee was acting as an agent of the employer in paying for the

item.”   

(emphasis added).

     The attorney’s fee paid by NCMI to Mr. Biehl’s attorney does

not fit within this rubric.   The attorney’s fee is not a business

expense that NCMI incurred through the use and employment of an

employee acting on its behalf.   There is no evidence, as there

cannot be, that NCMI instructed Mr. Biehl to incur the contingent

attorney’s fee on NCMI’s behalf in order to further NCMI’s

business of manufacturing and distributing medical supplies.

When Mr. Biehl incurred the obligation to pay the attorney’s fee,

he had long before ceased being an employee of NCMI.    He cannot

be said to have been performing services as an employee of NCMI

when he signed the fee agreement with Olimpia, Whelan, & Lively,

or when Olimpia, Whelan, & Lively rendered legal services to Mr.

Biehl pursuant to the agreement.    Mr. Biehl did not incur the

attorney’s fee “in connection with the performance by him of

services as an employee” of NCMI.

     We acknowledge that, in a remote or an attenuated sense, the

attorney’s fee arose out of Mr. Biehl’s performance of services

because it was his prior employment and performance of services

as an employee and the termination of the employment relationship

that gave rise to the lawsuit.   However, this is not an issue
                              - 31 -

that is governed by the origin of the claim test, the test that

concerns the general deductibility of expenses under section

162(a) or section 212.   See United States v. Gilmore, 

, 49 (1963); Test v. Commissioner, T.C. Memo. 2000-362;

McKeague v. United States, 

, 674 (1987).

Deductibility under section 162(a), as we have already discussed,

is the threshold requirement for an accountable plan specifically

and for section 62(a) generally.   The attorney’s fee paid by NCMI

to Mr. Biehl’s attorney was clearly attributable to Mr. Biehl’s

trade or business of being an employee and is deductible under

section 162(a).   See McKay v. Commissioner, 

(1994);

Alexander v. Commissioner, T.C. Memo. 1995-51.   The fact that the

attorney’s fee somehow may have been “spawned” by the performance

of prior services is much too tenuous a connection.   The

attorney’s fee incurred in the prosecution by a former employee

of a wrongful termination claim is simply too far removed from

the performance of an employee’s regular duties to have been

incurred “in connection with the performance by him of services

as an employee” of the employer.

     Despite the lack of an employer-employee relationship

between Mr. Biehl and NCMI when the attorney’s fee was incurred

and paid, petitioners insist that the settlement agreement and

the shareholders agreement establish an “arrangement” pursuant to

which NCMI reimbursed Mr. Biehl’s attorney’s fee.   Petitioners
                                - 32 -

argue, as the taxpayer argued in Brenner v. Commissioner, T.C.

Memo. 2001-127, regarding the indemnification provision in the

former corporate employer’s bylaws, that the NCMI shareholders

agreement, with its provision for payment of attorney’s fees and

costs to the prevailing party in any suit to enforce the

agreement, was a reimbursement arrangement that was implemented

by the settlement agreement.    This argument is misplaced.

     The shareholders agreement made no provision for recovery of

attorney’s fees and costs for a claim for wrongful termination of

employment, even any such claim by a shareholder.    The

shareholders agreement expressly negates any implication or

inference that it created any right to employment or continued

employment of any shareholder.    The shareholders agreement

thereby forecloses any argument that it could somehow be

construed as an arrangement to reimburse a shareholder’s

attorney’s fees incurred in prosecuting a claim for wrongful

termination of employment against NCMI.

     Nor can the settlement agreement standing alone create a

reimbursement arrangement that satisfies the business connection

requirement (or any requirement, for that matter) of the

accountable plan regulations.    The settlement agreement was

entered into long after Mr. Biehl had performed any services as

an employee of NCMI.   The attorney’s fee is referred to in the

settlement agreement only insofar as it directs NCMI to make
                             - 33 -

payment directly to Olimpia, Whelan, & Lively.   The settlement

agreement does not refer to the attorney’s fee as being incurred

“in connection with” Mr. Biehl’s duties as an employee, or as

having been incurred “for” NCMI or “on behalf of” NCMI or

incurred by Mr. Biehl “as an agent” of NCMI, nor does it make any

reference to a reimbursement arrangement.

     It is clear that the terms of the settlement (and events

subsequent thereto) providing for NCMI’s direct payment to Mr.

Biehl’s attorney of his attorney’s fee in prosecuting his

termination claim served Mr. Biehl’s tax purposes, not any

designated business purpose of NCMI.   As Mr. Biehl admitted in

his motion and supporting affidavit in the California Superior

Court to enforce the settlement agreement, the form and method of

making the settlement payment or payments was a matter to which

NCMI was completely indifferent.

     The exhibits made part of the stipulation of facts on which

this case has been submitted for decision include not only the

settlement agreement pursuant to which NCMI paid $799,000 to Mr.

Biehl and $401,000 to the account of his attorney, Olimpia,

Whelan, & Lively, but also petitioners’ motion papers

subsequently filed with the California Superior Court in the

termination lawsuit to enforce the terms of the settlement.     The

gravamen of petitioners’ motion was that NCMI had violated the

terms of the settlement by issuing a single Form 1099 to Mr.
                               - 34 -

Biehl.   The motion asserts:

     FEB will be greatly prejudiced by receiving the single
     Form 1099 * * * [Had] NCM issued two separate Form
     1099's, FEB and his tax advisors believe the IRS would
     treat only $799,000 as FEB’s earned income * * * No AMT
     results if FEB is required to report only $799,000 as
     provided in the settlement by specifically separating
     the payments. There was no other reason to provide for
     separate payments to FEB and Olimpia, Whelan, and
     Lively.

          While this issue has obvious importance and
     potential tax consequences to FEB, to NCM it is a
     distinction without a difference, whether NCM issues
     two Form 1099's * * * or a single Form 1099 to FEB
     should not matter to NCM, either way, NCMI has an
     expense of $1,200,000 and the result to the payor is
     the same. Thus, whether NCM issues one or two Form
     1009's is simply an administrative task.

     From the foregoing admissions it can fairly be inferred that

the separate payment to Mr. Biehl’s attorney was negotiated on

his behalf in a futile effort to minimize his Federal income tax

liability, not to serve any business purpose of NCMI that could

be fulfilled by any current performance of services by Mr. Biehl

on behalf of NCMI.

     There are intimations in the settlement documents and

petitioners’ briefs that the global settlement reached by NCMI

and petitioners served the business purposes of NCMI by avoiding

its bankruptcy and trial of petitioners’ other claims, thereby

enabling NCMI to continue as a viable business entity.

Petitioners also intimate that the separate payment arrangement

was of critical importance and that the parties could not have

achieved the settlement without the separate payment arrangement.
                              - 35 -

     The foregoing purposes of NCMI are within the scope of the

objectives that any defendant in a lawsuit expects to achieve by

a settlement.   However, those purposes are too far removed from

the universe of purposes of employers and employees that Congress

intended to serve by enacting section 62(a)(2)(A) and (c) and

their statutory predecessors, as implemented by the regulations

currently in effect.

     The purposes served by the statutory and regulatory

requirements for reimbursement arrangements have to do with the

operation and administration of the employment relationship

between employers and employees.   When an employee “accounts” to

an employer, the employer’s agreement to reimburse the employee

confirms that the expense was incurred on the employer’s behalf,

and that the employee was performing the duties required by the

employer in incurring the liability and in paying for the item.

The reimbursement arrangements contemplated by section

62(a)(2)(A) and the accountable plan regulations are far removed

from the case at hand and all other payments, by reimbursement or

otherwise, of the attorney’s fees incurred by former employees in

prosecuting wrongful termination claims against their former

employers.

Conclusion

     We acknowledge, as have courts in prior cases, that the

result we reach today “‘smacks of injustice’” because petitioners
                                - 36 -

are, in effect, denied the benefit of a deduction for Mr. Biehl’s

attorney’s fee.   Kenseth v. Commissioner, 

, 407

(2000) (quoting Alexander v. 

), affd.

(7th Cir. 2001).    However, the injustice is the

direct result of the plain meaning and original intent of section

62(a), with its built-in disparity in treatment of Schedule C

expenses and employee expenses, and the mechanical operation of

the itemized deduction provisions of sections 67 and 68 and the

AMT provisions.   Petitioners’ efforts to circumvent the business

connection requirement built into section 62(a)(2)(A) and to

avoid the restrictions on the deductibility of itemized

deductions must fail.   We conclude in this case, as we have in

prior cases, that it is the job of Congress, if it should decide

in its wisdom to do so, to cure the injustice.    Kenseth v.

Commissioner, supra at 407-408.    We sustain respondent’s

determination.


                                     Decision will be entered for

                                respondent.