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Can I Deduct my MBA Tuition as a Business Expense?

There is a first for everything and the following is – after four years – our first guest blog post ever. We recently blogged about a landmark tax case, wherein a nurse took on the IRS with regard to the deductibility of her MBA tuition and won. Soon after, Benjamin Post, an alumnus of the University of Texas – McCombs (’08) contacted mbaMission to offer insight from his own experiences and those of his classmates. We asked him to share his research and experience and he has done so via the entry below. We thank Benjamin for taking some of his time to help others in the MBA community.

 Sometime in 2006, a professional colleague forwarded me an article that was of great benefit to me and several of my MBA classmates. This article discusses the deductibility of MBA tuition within the context of Daniel Allemeir’s tax dispute with the IRS, and it has ended up saving me (and some of my classmates) thousands of dollars. Given the result of a recent case (similar to Allemeier’s) discussed on the mbaMission.com weblog January 10, 2010, it is likely that many more MBA students can benefit as well.

Based on the decision rendered under Daniel R. Allemeier v. Comm’r (Tax Court Memo 2005-207), Mr. Allemieir was able to deduct, as an unreimbursed business expense, the tuition he paid for his MBA. A few other cases are briefly discussed for comparative purposes, but they all underscore the theme that under certain circumstances, an individual can deduct the costs of education as a business expense. This is of specific interest to MBA students, who can easily spend several tens of thousands of dollars on their degrees. The tax savings on such amounts are quite significant.

Not all MBA students will meet the requirements to deduct their tuition as an unreimbursed business expense, but there is a good rule of thumb for determining eligibility in the form of the flowchart found in IRS publication 970. This form is the 2008 version. The flowchart is found on page 65, under Chapter 12, as Exhibit 12-1. Chapter 12 includes the IRS’ guidance on deducting expenses associated with work-related education.

For those interested in my particular situation, I have worked for the same organization since 2004 in Finance/Accounting. I have received three promotions, two of which occurred either before I began my MBA program (Fall 2005), or prior to my graduation (Spring 2008). Although my employer does reimburse a portion of my tuition, I of course did not claim any of that portion as a deduction. My employer did not require me to obtain the MBA, but the MBA did maintain and improve my skills in my current line of work. The MBA was not needed to meet the minimum requirement in my current line of work, and fortunately the recent decisions of the Tax Court seem to favor the idea that an MBA doesn’t necessarily qualify one for a “new trade or business”, much like a law degree would.

For the convenience of readers, the links to the Tax Court rulings of Daniel Allemeier and Lori Singleton-Clarke appear below. It should be noted that the ruling in Mr. Allemeir’s case is a “Tax Court Memorandum”, whereas Ms. Singleton-Clarke’s is a “Tax Court Summary Opinion.” The distinction is important, because the former may be treated as precedent; the latter may not. Nevertheless, the ruling in Ms. Singleton-Clarke’s case is a good indication of the court’s view on the deductibility of MBA expenses.

http://www.ustaxcourt.gov/InOpHistoric/allemeier.TCM.WPD.pdf

http://www.ustaxcourt.gov/InOpHistoric/SINGLETON-CLARKE.SUM.WPD.pdf

Due to the exceedingly complex, interpretive, and dynamic nature of tax law, readers are strongly encouraged to consult a tax professional regarding their particular situations. This weblog post is not intended to constitute tax advice. It is presented only for the information and convenience of the reader. It is solely the responsibility of the reader to ensure that he or she is in compliance with the law. Furthermore, the writer is not responsible for any of the content of the materials accessible via the hyperlinks.

I wish to thank the CPA Journal and its writers for pioneering this discussion back in 2005.

Benjamin Post (benpost1@hotmail.com)


January 25, 2010

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