Paul L. Caron

Thursday, September 1, 2005

Tax Court Allows Deduction for M.B.A. Expenses

Tax_court_8We previously have blogged (here and here) the Tax Court's refusal to allow the deduction of M.B.A. expenses on the ground that the expenses qualified the taxpayer for a new trade or business under Reg. § 1.162-5.  One of the posts quoted Robert Willens (Lehman Brothers) as saying that recent cases virtually foreclose a deduction for M.B.A. expenses: "An M.B.A. is always going to qualify you to do something beyond what you're doing.... Quite frankly, it's pretty much over. It's going to be virtually impossible to take a deduction for education expenses."  The Tax Court reversed course yesterday in Allemeier v. Commissioner, T.C. Memo. 2005-207 (8/31/05), permitting a saleman of othodontic appliances to deduct the expenses of obtaining an M.B.A. at Pepperdine.  The Tax Court concluded:

[P]etitioner’s MBA courses provided him with a general background to perform tasks and activities that he had performed previously at Selane Products. We also decline to find as an objective matter that the MBA qualified petitioner in a “new” trade or business, where petitioner had substantial work experience directly related to his MBA coursework.  The MBA qualified petitioner to perform the same general duties he performed before enrolling in the MBA program.

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