Tax Memo Tax Research Memorandum Lauren Smith

Tax Memo

Tax Research Memorandum

Lauren Smith

From: Tax Accountant, CPA

You incurred $15,000 of educational expenses over the past year in pursuit of your MBA, part of your professional development as a practicing Registered Nurse and nursing administrator. Your employer does not offer an educational expense reimbursement program, and you wish to claim these educational expenses as business expenses in order to claim greater tax deductions. You have worked in numerous administrative positions in your capacity as a nurse, and feel that the pursuit of an MBA was a clear part of your career development.

The only issue is whether or not the education you received at the expense of $15,000 can be deemed work-related education as defined and applied by the IRS, which recognizes such expenses as business expenses for employees. If the education can be deemed work-related according to IRS rules and definitions, the deduction of the educational expenses as a business expense is allowed, however if it is not then only standard educational educations can be taken (IRS, 2011).

Rule

In order for an educational program to fall under the work-related education at the IRS and thus qualify as a business expense, you must be working and itemize your deductions on Schedule A, and the education received must either be required by your employer or the law to maintain present salary, status, or job ("the education must serve a bona fide business purpose of your employer") or maintain or improve skills needed in your present occupation. However, even if one or both of the above tests are met, the education does not qualify as a business expense if it is necessary to meet the minimum requirements of your current occupation or if it qualifies you for a new trade or business (IRS, 2011).

Analysis

While it might seem that an MBA would indeed qualify you for a new trade or profession, rendering the educational expenses un-claimable as business expenses regardless of the fact that they support your current position, a recent ruling by the Tax Court on precisely such a case found that an MBA can be sought simply to enhance the existing skill set of an administrative nurse, and that educational expenses in pursuit of said MBA are directly related to an administrative nurse's employment and therefore qualify as business expenses (Tax Court, 2009). As with all rulings of the Tax Court, however, this case cannot be used as a direct precedent for any other case, and therefore this does not guarantee that a similar outcome would be reached (Tax Court, 2009). It is highly unlikely that a different determination would be achieved in this case, though, given the similarity of many relevant facts.