Paul L. Caron

Thursday, December 3, 2009

Tax Court Allows Nurse to Deduct Cost of University of Phoenix MBA

The Tax Court yesterday allowed a nurse to deduct the cost of an M.B.A. degree from the University of Phoenix.  Singleton-Clarke v. Commissioner, T.C. Summ. Op. 2009-182 (Dec. 2, 2009) (citations omitted):

Petitioner began taking courses at the University of Phoenix in March 2005, graduating in April 2008 with an MBA/HCM. She chose the University of Phoenix because the institution allowed students to complete the program via online courses, which was a major priority for petitioner.

Petitioner enrolled in the program to become more effective in her then-present duties. She realized that nursing had evolved greatly in the 24 years since she earned her bachelor’s degree, and she felt disadvantaged working with highly educated doctors. Petitioner believed that although an MBA was not required for her job, the degree would give her greater credibility and the courses would make her more effective in her present and future role as a quality control coordinator.

The University of Phoenix MBA/HCM provides students “with the business management skills needed to manage successfully in today’s health care delivery systems.” ...

An MBA degree is different from a degree that serves as foundational qualification to attain a professional license. For instance, this Court had denied deductions for law school expenses, because a law degree qualifies a taxpayer for the new trade or business of being a lawyer.

An MBA is a more general course of study that does not lead to a professional license or certification. This Court has had differing outcomes when deciding whether a taxpayer may deduct education expenses related to pursing an MBA, depending on the facts and circumstances of each case. The decisive factor generally is whether the taxpayer was already established in their trade or business. ...

Analyzing petitioner’s situation, her facts and circumstances far more closely resemble the cases that allowed a deduction for pursuing an MBA. Petitioner is unlike the student in Link, who went straight from his undergraduate degree into an MBA program, and the officer in Schneider, who went straight from the Army into an MBA program. Petitioner is considerably closer in circumstance to the taxpayers in Sherman, Allemeier, and Blair, who had 2 years, 3 years, and 1 year, respectively, of experience performing tasks and activities in their chosen professions before beginning their MBA programs. The facts in favor of petitioner are even stronger than those in the three cases above where the taxpayers prevailed. Petitioner worked for 1 year as a quality control coordinator and had more than 20 years of directly related work experience, gaining vast clinical and managerial knowledge in acute and subacute health care settings, before beginning the University of Phoenix MBA/HCM program.

In summary, the MBA/HCM may have improved petitioner’s preexisting skill set, but objectively, she was already performing the tasks and activities of her trade or business before commencing the MBA. For all of the above reasons, we find that petitioner’s MBA/HCM did not qualify her for a new trade or business, and we hold, therefore that petitioner may deduct her education expenses for 2005.

Prior TaxProf Blog coverage of the deductibility of M.B.A. expenses:

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This seems to be a solid ruling seperating out those who just need general guidance from students who might not understand the complete ramifications of what they're learning. Bravo!

Posted by: Kyle | Dec 3, 2009 11:22:55 AM