Subject to certain exceptions, a taxpayer can deduct education expenses if (a) made to maintain or improve skills required in his business or employment, or (b) to meet the express requirements of his employer, or the requirements of law or regulations, imposed as a condition to retaining his salary, status or employment.
A taxpayer enrolled in an MBA program in 2009, and deducted his expenses. He claimed that that he was in the business of selling pharmaceuticals and that the MBA classes enabled him to obtain employment. His work history in 2009 was:
(a) January 1 to April 30 – oncology account specialist;
(b) May 1 to August 10 – unemployed;
(c) August 11 to October 1 – oncology account manager;
(d) October 2 to October 11 – unemployed;
(e) October 12 and after – professional for Walgreens (unrelated to drug sales).
Under the above rule, the taxpayer must be in business or be employed. This is why most students who go on to law school or business school after college cannot deduct their professional school costs.
Here, the Tax Court found that the taxpayer was not established in a trade or business before beginning the MBA program. The Tax Court noted that carrying on a trade or business requires considerable continuous and regular activity – the sporadic employment of the taxpayer was not continuous enough for this purpose. While the taxpayer was “qualified” to engage in the business of selling pharmaceuticals, that is not the same thing as actually carrying on the business, either during the classes or before enrolling.
Hart, TC Memo 2013-289