Valle v. Commissioner, T.C. Summ. Op. 2018-51 (Nov. 5, 2018):
The sole issue presented for decision is whether petitioner is entitled to deductions for education expenses incurred in 2014 while pursuing a master of laws (LL.M.) degree from New York University (NYU). ...
Petitioner earned his law degree (Licenciatura en Derecho) from Carlos III University in Spain in September 2006. That same month he began working as a full-time associate at the Madrid, Spain, office of PricewaterhouseCoopers Tax & Legal Services, S.L. (PwC). Petitioner continued his foreign legal education while working at PwC, earning an LL.M. degree with a major in corporate law from Instituto de Empresa Law School in Spain in July 2008. In November 2009 petitioner began work as an associate at Bird & Bird LLP’s office in Madrid. On January 8, 2010, petitioner was admitted to the bar association of Madrid; he has since maintained a license to practice law in Spain. In September 2010 petitioner commenced work at the Madrid offices of Olswang LLP, an international law firm. From September to December 2011 petitioner was stationed at the London, England, office of Olswang LLP. Petitioner describes his tasks at each of PwC, Bird & Bird LLP, and Olswang LLP as “among others, drafting specialized legal documents, such as contracts and memoranda, researching and analyzing legal and business requirements for clients and providing advice on legal matters.”
After practicing law for several years in Madrid and London, petitioner moved to New York City to pursue an additional LL.M. degree at NYU. Petitioner enrolled at NYU in September 2013 and earned his LL.M. in May 2014. ... Petitioner paid tuition expenses of $27,435 to attend NYU’s LL.M. program during tax year 2014.
On June 5, 2014, the international law firm Shearman & Sterling LLP (Shearman) offered petitioner a visiting attorney position as part of its International Associate Program (IAP).3 As described on Shearman’s website, the “ideal candidate” for the IAP has completed “both a law degree in his or her home country and an LL.M. program in a U.S. law school.” ... On July 1,2016, petitioner’s salary was increased to $180,000 per year, a salary commensurate with that of a typical second year associate. Petitioner describes his tasks at Shearman as “drafting specialized legal documents, such as contracts and memoranda, researching and analyzing legal and business requirements for clients and providing advice on legal matters.”
Petitioner’s LL.M. degree from NYU satisfied all requirements to take the New York State bar examination. Petitioner would not have satisfied the requirements to take the New York State bar examination with his other degrees and qualifications. On October 24, 2016, having passed the New York State bar examination, petitioner was admitted to the practice of law in New York.
Petitioner continued to work as a visiting attorney at Shearman and to receive pay raises. On October 4, 2016, and January 1, 2017, petitioner’s salary increased first to $190,000 and then $210,000, respectively. On May 21, 2017, petitioner became an associate at Shearman in the mergers and acquisitions practice group. His salary increased to $235,000 on January 1, 2018. ...
Petitioner argues that he was an international attorney before earning his LL.M. and that his additional degree merely improved the skills required in his existing trade. ... The Court accepts petitioner’s contention that the LL.M. degree improved his skills as an international attorney. In taking primarily corporate law courses in the United States, he likely expanded his knowledge of subject matter used in his work in international mergers and acquisitions and enhanced his practical English skills. Nonetheless, the LL.M. degree also qualified him to perform tasks and activities significantly different from those he could perform before obtaining it. As in O’Connor v. Commissioner, petitioner was not eligible to sit for the New York State bar examination before obtaining his degree and had not established himself as an attorney in the United States before incurring the educational expenses. After receiving his LL.M. degree petitioner was permitted to take the bar exam and, upon passing it and meeting all other eligibility requirements, be admitted to practice as an attorney in New York. ...
For these reasons, we conclude that although petitioner may have improved his skills as an international attorney by obtaining his LL.M., the degree qualified him for a new trade or business, the practice of law in New York. Therefore, petitioner’s education expenses are properly considered personal expenditures rather than ordinary and necessary business expenses.