This tax research memorandum examines whether $15,000 in MBA educational expenses incurred by a practicing Registered Nurse and nursing administrator qualify as deductible work-related business expenses under IRS guidelines. The memo outlines the applicable IRS rules for work-related education, including the requirement that education either maintain current employment status or improve skills in a present occupation, and that it must not qualify the taxpayer for a new trade or business. Drawing on a 2009 Tax Court opinion involving a substantially similar fact pattern, the memo concludes that the MBA expenses are likely deductible as business expenses, though the Tax Court ruling does not set binding precedent.
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To: Client
From: Tax Accountant, CPA
You incurred $15,000 of educational expenses over the past year in pursuit of an MBA, as 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 obtain greater tax deductions. You have worked in numerous administrative positions in your capacity as a nurse and believe that the pursuit of an MBA was a clear part of your career development.
The sole question is whether the education you received, at a cost of $15,000, can be deemed work-related education as defined and applied by the IRS, which recognizes qualifying educational expenses as business expenses for employees. If the education qualifies as work-related under IRS rules, the deduction of these expenses as a business expense is permitted. If it does not qualify, only standard educational deductions may be taken (IRS, 2011).
In order for an educational program to fall under the work-related education category recognized by the IRS — and thus qualify as a business expense — the taxpayer must be employed and must itemize deductions on Schedule A. Additionally, the education received must satisfy at least one of two conditions: (1) it is required by the employer or by law in order to maintain the taxpayer's present salary, status, or job (i.e., "the education must serve a bona fide business purpose of your employer"), or (2) it maintains or improves skills needed in the taxpayer's 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 educational requirements of the taxpayer's current occupation, or if it qualifies the taxpayer for a new trade or business (IRS, 2011).
"Applying IRS rules and Tax Court precedent"
As with all Tax Court summary opinions, however, this ruling cannot be used as binding precedent for any other case, and it therefore does not guarantee that an identical outcome would be reached in your situation (Tax Court, 2009). That said, given the substantial similarity between the facts of that case and your own circumstances, it is highly unlikely that a different determination would be made here.
Based on the analysis above, claiming the $15,000 in educational expenses as a business expense should not pose any significant problem and will likely be approved by the IRS without issue, resulting in a substantial tax savings. There is a possibility that the claim may be denied initially; in that event, it would be advisable to pursue the matter through available legal channels, as prevailing on the merits is the probable outcome.
IRS. (2011). Tax Benefits for Work-Related Education. Retrieved March 25, 2012, from http://www.irs.gov/publications/p17/ch27.html#en_US_2011_publink1000173988
Tax Court. (2009). T.C. Summary Opinion 2009-182. Retrieved March 25, 2012, from
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