Tax Research Assignment I

Tax Research Memorandum

To: Lauren Smith

From: Jane Doe

Date: August 25, 2012

Re: Tax Treatment of Education Expense


You incurred $15,000 in education expenses during the tax year in the course of earning an MBA from a local university. Because your employer does not have an education expense reimbursement program, you would like to deduct these expenses on your tax return as an employee business expense.


The issue is whether or not the above referenced education expenses are eligible for deduction as an employee business expense on your tax returns.


According to Section 1.162-5, a taxpayer is entitled to deduct education expenses as an ordinary and necessary business expense if the education meets one of the following requirements:

- “maintains or improves skills required by the individual in his employment or other trade or business”
- “meets the express requirements of the individual’s employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation.”


Your issue very closely relates to a similar tax court case of Singleton-Clarke vs. Commissioner of the Internal Revenue Service.   According to Tax Topic 513 – Educational Expenses, “the education cannot be part of a program that will qualify you for a new trade or business, nor can it be needed to meet the minimal educational requirements of your trade or business.”   Your education received from the MBA did not qualify you for a new trade or business; it only improved your pre-existing skill set for the duties of your existing trade or business.


Based on the analysis above, it is clear that you are able to deduct your education expenses as an eligible business expense, assuming that the dollar amount of the expenses is greater than that of 2% of your Adjusted Gross Income.