The opinion by Special Trial Judge Stanley Goldberg follows existing tax court precedent on similar cases. There is nothing remarkable or especially noteworthy about the case.
At stake in Singleton-Clarke v. Commr (PDF download) was a little over $2000 in federal income tax resulting from a denial of roughly $15,000 of tuition paid in 2005.
Ms. Singleton-Clarke had been working as a nurse in a management capacity and was involved in quality control and risk management functions. The degree she pursued was an MBA in Health Care Management, an area in which the court found she had already established her trade. The court rejected IRS arguments that her MBA qualified her for a new trade, basing its findings closely on the taxpayers employment history. The court also cited to three reported cases from 1977, 1980, and 2005 where the tax court allowed the deduction of MBA expenses under facts it found similar to the Ms. Singleton-Clarkes.
While the Singleton-Clarke case is not precedent, the cases it followed represent more than 30 years of reported precedent. Even if Singleton-Clarke were precedent, it wouldnt change the law or make it possible for tens of thousands of students to deduct the cost of an MBA if they werent otherwise entitled.
So who can deduct tuition? First, the education has to improve the skills you need to perform an existing trade, or it has to be a requirement imposed by law or your employer. Second, the education cannot qualify you for a new trade. These arent complicated or onerous rules. But theyre extremely fact-sensitive, and that makes them sometimes difficult to apply.
Education that leads to professional licensure is generally not deductible because by definition it qualifies you for a new trade. You may be able to deduct tuition for your MBA if you have an established area of work and the MBA improves your skills in that area of work.
If you have questions about whether you can deduct the cost of education, you should consult a tax attorney. The Wall Street Journal should also consult a tax attorney before it reports on tax matters.
The following is an update to this article.
This article was shared with WSJ author, Laura Saunders, and her editor, Neal Templin. Ms. Saunders responded to our article with an email defending her reliance on CPA tax experts to interpret the court case she reported on. One CPA she relied on was as Robert Willens, an adjunct professor at Columbia Business School whom she says helps MBA students trying to take the tuition deduction.
Ms. Saunders also asked if wed seen the sidebar to her article. We had, and promised wed post a link to it (click here). The sidebar explains some of the background regarding deduction of education expenses and reports Willens as saying his students were delighted with the decision, and that many students think theyll qualify.
We would have preferred to post Ms. Saunders entire email response so readers could view the full context of her comments, but her editor declined our request for permission to post the entire email. Willens did not respond to our request for comment sent to his Columbia email address.
The problem with Ms. Saunders reliance on Mr. Willens or other CPAs is not that CPAs cannot be tax experts they can. Certified Public Accountancy is a sophisticated field with many talented practitioners fluent in tax compliance, tax planning, and other areas involving tax. However, CPAs cannot provide legal advice.
Ms. Saunders and her editor published an article about a court case and reported that it resulted in a major legal change affecting the tax returns of tens of thousand of individuals annually. They drew that conclusion without consulting a single legal expert. Some people may be thrilled by the populist message that you can beat the IRS, but the public was not served by the articles wrong and irresponsible conclusions, which were drawn without consulting a single legal expert.
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