                         T.C. Memo. 2007-144



                       UNITED STATES TAX COURT



       DARWIN J. ALBERS & PEGGY L. ALBERS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18440-05.                 Filed June 7, 2007.



     Frank W. Bastian, for petitioners.

     David S. Weiner and Frederick L. Wesner, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency of

$1,986 in petitioners’ Federal income tax (tax) for their taxable

year 2001.

     We must decide whether petitioners are entitled for their

taxable year 2001 to deduct under section 162(a) the $8,216

claimed for “Employee benefit programs” in Schedule F, Profit or
                                - 2 -

Loss From Farming (petitioners’ 2001 Schedule F), included as

part of their tax return for that year.      We hold that they are

not.

                          FINDINGS OF FACT

       All of the facts in this case, which the parties submitted

under Rule 122,1 have been stipulated by the parties and are so

found except as stated below.

       Petitioners, who at all relevant times had two children,

resided in Sioux Falls, South Dakota (Sioux Falls), at the time

they filed the petition in this case.

       At all relevant times, petitioner Darwin J. Albers (Mr.

Albers) owned and operated a grain farm (farming business) near

Sioux Falls.

       On a date not disclosed by the record, Mr. Albers and

petitioner Peggy L. Albers (Ms. Albers) signed a two-page

preprinted form entitled “WRITTEN EMPLOYMENT AGREEMENT” (Ms.

Albers’s employment agreement).2   Ms. Albers’s employment agree-

ment provided in pertinent part:

       THIS AGREEMENT, made by and between Peggy Albers (here-
       inafter “Employee”), and Darwin Albers (hereinafter
       “Employer”):



       1
      All Rule references are to the Tax Court Rules of Practice
and Procedure. All section references are to the Internal
Revenue Code in effect for the year at issue.
       2
      The word “SAMPLE” appeared across the first page of the
employment agreement.
                            - 3 -

WHEREAS, Employee is, and has been, performing services
as an Employee for the Employer, and

WHEREAS, Employer agrees to compensate Employee for
such services, and

WHEREAS, Employer is engaged in the business of farm-
ing, (i.e. farming, carpentry, insurance sales, etc.)
and

WHEREAS, The parties wish to formalize in writing their
contractual relationship as Employer and Employee,

WHEREAS, This agreement is to remain in effect as long
as each party abides to said agreement,

NOW THEREFORE, The parties do hereby agree and contract
to the following:

1.   Services of Employee

     Employee shall, at the direction of the Em-
     ployer, perform the following services for
     the Employer:

     hauling grain (Truck) Drive Tractor grain
     cart. getting parts. Hauling water for
     spraying, fuel, picking * * * etc. approx 20
     hrs week

     (e.g. bookkeeping; accounts payable services,
     business errands, preparation of meals for
     help, phone services, field work, clerical
     and/or retail services and other usual and
     customary services to the business.) Define
     these services. Changes in required services
     will be communicated by the Employer to the
     Employee through the course of employment.

2.   Compensation

     Employer agrees to establish and pay named
     Employee $10.00 per hour per $10.00 (i.e.
     monthly, hourly, etc.) compensation for ser-
     vices performed. Compensation is subject to
     change upon the Employer’s discretion.
                                 - 4 -

     3.       Benefits

              In addition to the above compensation, the
              Employer agrees to provide: certain benefits
              according to the terms and provisions of an
              established plan outlined in Plan Summary.

          *        *       *       *       *       *         *

     IMPORTANT NOTICE:

     The Written Employment Agreement included in your
     packet is a Sample of the type of agreement that can be
     used between the employer and the employee (spouse).

     A Written Employment Agreement can be used to further
     solidify the formal working relationship between the
     employer and the employee (spouse). However, the
     ability for a sole proprietor farmer or business owner
     to take advantage of AgriPlan or BizPlan does not rely
     upon this written agreement as long as an
     Employer/Employee relationship exists. [Reproduced
     literally.]

     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.

     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

     3
      During the year at issue, other individuals performed
services for Mr. Albers’s farming business. Mr. Albers treated
those individuals as independent contractors.
                                - 5 -

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:

     (1) EMPLOYER INFORMATION     AgriPlan : BizPlan 9

      Employer Last Name           First Name
             Albers                 Darwin

     Filing Status: : Sole proprietor    9 K-1 Partnership
                    9 C Corporation      9 Sub S Corporation

     (2) PARTICIPATION AND ELIGIBILITY REQUIREMENTS (Check
         excluded employees and elect the respective
         maximums; if a maximum is not elected, it will
         automatically be defaulted to the maximum allowed.)

         :     Part-time employees not completing 20 hours of
               work per week (maximum of 35 hours * * *

         :     Seasonal employees not completing 9 months of
               work within a year (maximum of 9 months * * *

         :     Employees not completing 25 years of age
               (maximum 25 years)

         :     Current employees not completing 36 months of
               service with employer (maximum of 36 months)

         :     New employees not completing 36 months of
               service with employer (maximum 36 months)

         :     Employees who are non-U.S. citizens

     (3) ELIGIBLE EMPLOYEES -- Each additional employee is
         $50.00. Attach a separate list, if necessary.
                                     - 6 -

              Employee Last Name         First Name     Fee
                    Albers                 Peggy      $175.00

          *           *       *       *         *      *        *

           Add fee amounts to calculate your total annual fee
           for AgriPlan or BizPlan           Total Fee 175.00

     (4) AVAILABLE BENEFITS (Check the benefits available to
         the eligible employee)

           Employee and Family

              :   Medical or Medical Related Health Insurance

              9   Dental Insurance

              :   Medical or Medical Related Expense
                  Reimbursement (Please indicate amount below.
                  This does not include premiums.)

              $   5000 Maximum amount of medical reimbursement
                  available per eligible employee for Plan year.

           Employee Only

           9      Term Life Insurance - $50,000.00 max. death
                  benefit

              9   Disability Insurance

     (5) Authorization

     The undersigned employer [Darwin Albers] hereby
     executes this agreement on the 21st day of Dec
     1995, and the plan start shall be January 1st of
     this year. [Reproduced literally.]

     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.
                                                                - 7 -

          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:
1.    The Plan I am applying for is:   *   CLASSIC BLUE                 BLUE SELECT                         Are you also applying for the
      (PLEASE CIRCLE ONE)              .   Plan I   Plan II             $500      $750      $1,000          Supplemental Accident Option?
                                       +     Plan III    Plan IV             $2,500[4]   $5,000               9Yes   :No   N/A on Plan A
                                       *    Plan A    Plan B                                                                 or B
2.    This request for coverage is for:    (check all that apply)             3.   This application is for: (check all that apply)
       :Self :Spouse :Child(ren)                                                     :New Enrollment 9Change 9Adding/Removing
                                                                                                                 Dependents
4.    Indicate how you wish to be billed: (check all that apply)
      9 Monthly [Automatic Account Withdrawal required; complete form M-3506(U)]   9Quarterly   :Semi-annually                  9Annually
      9 Automatic Account Withdrawal (complete form M-3506(U) Authorization for Automatic Account Withdrawal)
5.    The amount you are submitting for health insurance is:       $229.10 (Make check payable to Wellmark Blue Cross and Blue
      Shield of South Dakota)
                                         *       *       *       *       *       *       *
      Is any portion of the premium or benefits paid by or on behalf of the small group employer? Yes (reason) _______     :No
      Is the health benefit plan part of a plan or program for purposes of Section 125 or 106 of the IRS code?   9Yes   :No
                                           *          *     *       *         *          *             *
7.    Creditable Coverage. Does any person named on this application have health care coverage now or did they have it within
      the last 63 days? 9No :Yes, complete the following:
     Type of Policy - Company or
             Individual                Covered Individual       Effective Date     Termination Date            Insurance Company     ID Number
                                                                                         [5]                                            [6]
              Family Ind.                       All                7-8 yrs.                    issue             Am. Republic




          4
      Mr. Albers circled “$2,500” under the “Blue Select” plan
for which he was applying.
          5
      The word that appeared before the word “issue” is not
legible.
          6
      The “ID Number” shown was Mr. Albers’s Social Security
number.
                               - 8 -

On April 25, 2001, Mr. Albers signed Mr. Albers’s Wellmark

application as “Applicant”, and Ms. Albers signed that form as

“Spouse”.

     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

     During 2001, petitioners paid directly to the medical and

dental providers listed below the amounts shown for services

provided on the dates indicated:




     7
      The parties, apparently inadvertently, stipulated two
copies of the same $1,678.80 check No. 7785, dated Dec. 22, 2001,
and payable to Wellmark. Mr. Albers’s Social Security number
appeared as a notation on that check. The parties agree that the
$8,216 deduction for “Employee benefit programs” claimed in
petitioners’ 2001 Schedule F included $3,586 of premiums paid
during 2001 for Mr. Albers’s Wellmark health policy (claimed
$3,586 of health insurance premiums).
                                   - 9 -

         Date                Health Provider                 Amount
     1/15/01                   Dr. Dillon                    $173.00
    02/08/01                    Dr. Bliss                     144.00
    04/11/01                   Dr. Dillon                     525.00
    05/15/01                  Dr. Valentine                    22.00
                       (Harrisburg Booster Club)
    06/08/01                      CLM1                         22.58
    08/03/01                   Dr. Dillon                     507.00
    08/08/01                The Eye Doctor’s                  229.50
    08/09/01                    Dr. Bliss                     188.00
    08/29/01                    Dr. Bliss                     242.00
    08/30/01                Dr. Kevin Horner                1,550.00
    09/18/01                   Dr. Dillon                     765.00
    12/06/01                The Eye Doctor’s                  238.50
                                                   Total   $4,606.58
     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.

     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



     8
      The record does not disclose who paid Ms. Albers’s credit
card charges of $854.
                                    - 10 -

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:

     EMPLOYEE STATUS

     Gross W-2 wage to employees during
       2001 (other than benefits):                        _______[9]

               *       *       *       *         *   *       *

     BENEFIT TOTALS

     1    Medical/Health Insurance Premium
          (from Section 2)[10]                            3586.00

               *       *       *       *         *   *       *

     7    Medical expenses from 2001 plan year
          (from Sections 3 and 4)[10]                     4630.00[11]

               *       *       *       *         *   *       *

                                                     TOTAL 8216.00

     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.

               *       *       *       *         *   *       *

     The employee listed [Ms. Albers] is or has been an employee for a


     9
      No amount was shown in Ms. Albers’s employee benefit ex-
pense form as her “Gross W-2 wage * * * during 2001 (other than
benefits)”.
     10
      Sections 2 and 4 of Ms. Albers’s employee benefit expense
form are not part of the record in this case.
     11
      The amount shown is the amount, rounded down, of the total
(i.e., $4,630.58) of all of the medical expenses shown in “Sec-
tion 3 Medical Expenses” quoted below.
                                     - 11 -
     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

              *           *   *         *       *         *       *

   Year      Name of Care         Type of        Amount paid not
 Incurred      Provider           Service     covered by Insurance    Date Paid
              *           *   *         *       *         *       *
   2001           Dillon          Dental            507.00            08/03/01
   2001           Dillon          Dental            525.00            04/11/01
   2001           Dillon          Dental            173.00            01/15/01
   2001           Dillon          Dental            765.00            09/18/01
   2001           Horner      Orthodontist          1550.00           08/30/01
   2001           Bliss           Dental            188.00            08/09/01
   2001           Bliss           Dental            144.00            02/08/01
   2001           Bliss           Dental            242.00            08/29/01
   2001           Siestra         Eye Dr.           229.50            08/08/01
   2001           Siestra         Eye Dr.           238.50            12/06/01
   2001     Valentine-HBC         Physical           22.00            05/15/01
   2001            CLM        Strep Test             22.58            06/08/01
   2001     S.V. Physicians      Strep               24.00 [12]       05/24/01
                               Screening

     On April 15, 2002, petitioners filed Form 1040, U.S. Indi-

vidual Income Tax Return, for their taxable year 2001.                Petition-

ers’ 2001 Schedule F pertained to Mr. Albers’s farming business.


     12
      The record does not establish that the $24 request for
reimbursement reflected in Ms. Albers’s employee benefit expense
form was paid in 2001 (or at any other time). The parties agree
that the $8,216 deduction for “Employee benefit programs” claimed
in petitioners’ 2001 Schedule F included $4,630 claimed for
services by medical and dental providers (claimed $4,630 of
medical and dental expenses).
                               - 12 -

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, respondent

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 petition-

ers a “Self-Employed Health Insurance Deduction” of $2,151

because “You are allowed an additional deduction for Self-Em-

ployed 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, 91

(1990), affd. 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 credi-

ble evidence with respect to any factual issue relevant to
                               - 13 -

determining the tax liability of 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 suffi-
       cient 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.
       * * *

H. Conf. Rept. 105-599, at 240-241 (1998), 1998-3 C.B. 747, 994-

995.

       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 in 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 in-

curred during the taxable year in carrying on a trade or busi-

ness, sec. 162(a), including any amount paid to an employee
                                      - 14 -

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 insur-

ance costs that he pays or incurs for himself, his spouse, and

his dependents except as provided in section 162(l).14

     13
          See Francis v. Commissioner, T.C. Memo. 2007-33.
     14
      As applicable here, sec. 162(l)(1) provides that a tax-
payer, like Mr. Albers, is entitled to deduct 60 percent of any
amount that such taxpayer paid or incurred during 2001 for
insurance that constituted medical care for such taxpayer, such
taxpayer’s spouse, and such taxpayer’s children. Sec. 162(l)
provides in pertinent part:

     SEC. 162.        TRADE OR BUSINESS EXPENSES.

           *          *        *         *        *           *       *

          (l) Special Rules for Health Insurance Costs of
     Self-Employed Individuals.--

               (1) Allowance of deduction.--

                    (A) In general.–-In the case of an indi-
               vidual who is an employee within the meaning
               of section 401(c)(1), there shall be allowed
               as a deduction under this section an amount
               equal to the applicable percentage of the
               amount paid during the taxable year for in-
               surance which constitutes medical care for
               the taxpayer, his spouse, and dependents.

                    (B) Applicable percentage.–-For purposes of
               subparagraph (A), the applicable percentage shall
               be determined under the following table:

               For taxable years beginning   The applicable
               in calendar year--            percentage is–

               1999 through 2001 . .. . . . . . . .60

                                                                  (continued...)
                               - 15 -

     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, pursu-
     ant to a valid I.R.C. § 105(b) health plan [AgriPlan/
     AgriBiz medical reimbursement plan]; therefore, Peti-
     tioners 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. § 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. § 105 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.
     § 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.”




     14
      (...continued)
     The legislative history under sec. 162(l) establishes that
that statute was enacted “to reduce the disparity between the tax
treatment of owners of incorporated and unincorporated busi-
nesses.” S. Rept. 104-16, at 11 (1995); see also H. Rept. 104-
32, at 7-8 (1995).
                                  - 16 -

     In advancing the foregoing contentions, petitioners misun-

derstand 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.

           *        *       *       *       *       *          *

                    (b) Amounts Expended for Medical Care.--
               * * * gross income does not include amounts
               referred to in subsection (a) if such amounts
               are paid, directly or indirectly, to the
               taxpayer to reimburse the taxpayer for ex-
               penses incurred by him for the medical care
               (as defined in section 213(d)) of the tax-
               payer, his spouse, and his dependents * * *.
               [Emphasis added.]

Contrary to petitioners’ contentions, section 105(b) addresses a

situation where certain amounts described in section 105(a)15 are

paid, directly or indirectly, to a taxpayer to reimburse the

taxpayer for the expenses that such taxpayer incurred for the

medical care of such taxpayer, such taxpayer’s spouse, and such

taxpayer’s dependents.



     15
          Sec. 105(a) provides:

          (a) Amounts Attributable to Employer
     Contributions.--Except as otherwise provided in this
     section, amounts received by an employee through acci-
     dent or health insurance for personal injuries or
     sickness shall be included in gross income to the
     extent such amounts (1) are attributable to contribu-
     tions by the employer which were not includible in the
     gross income of the employee, or (2) are paid by the
     employer.
                              - 17 -

     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 failed 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

     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



     16
       Petitioners concede on brief that the claimed $3,586 of
health insurance premiums were “incurred by her [Ms. Albers’s]
spouse [Mr. Albers]”, and not by her. The parties stipulated
that those premiums were “paid by check from petitioners’ joint
checking account.” Mr. Albers’s Social Security number appeared
as a notation on the check that is in the record in this case and
that paid a portion of such claimed premiums during the year at
issue.
     17
      The parties stipulated that $4,606.58 of the claimed
$4,630 of medical and dental expenses was “paid directly by
petitioners”.
                               - 18 -

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.

     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 “Em-

ployee benefit programs” claimed in petitioners’ Schedule F.19


     18
      Petitioners’ reliance on Revenue Ruling 71-588, 1971-2
C.B. 91, is misplaced. In that revenue ruling, a taxpayer who
operated a sole proprietorship with several full time employees,
including his spouse, had an accident and health plan covering
all employees and their families. During the year involved in
Revenue Ruling 71-588, two employees, including the taxpayer’s
spouse, incurred expenses for medical care for themselves, their
spouses, and their children and were reimbursed pursuant to the
taxpayer’s plan. Revenue Ruling 71-588 held that the reimbursed
amounts received by the employees are not includible in their
gross income pursuant to sec. 105(b) and that such amounts are
deductible by the taxpayer under sec. 162(a). Revenue Ruling 71-
588, unlike the instant case, involved employees who incurred
certain expenses for medical care and who were reimbursed by
their employer for the expenses that they incurred.
     19
      As discussed above, respondent allowed in the notice that
respondent issued to petitioners for their taxable year 2001
$2,151 of the claimed $3,586 of health insurance premiums as a
                                                   (continued...)
                             - 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.




     19
      (...continued)
“deduction for Self-Employee Health Insurance.”    See sec.
162(l)(1).
