MBA Student’s Attempt to Deduct Tuition Fails in the Tax Court

As students grapple with the escalating costs of post-secondary education, one enterprising student attempted to defray his costs by deducting his Masters of Business Administration program tuition as an unreimbursed business expense. Unfortunately for the taxpayer, his employment in the trade or business he asserted was too infrequent to constitute working on a “regular and continuous” basis, which led the US Tax Court to uphold a denial of the taxpayer’s deduction.

After graduating college in 2007, Adam Hart enrolled in a MBA program in 2009. During 2009, Hart worked in a sales position with Priority Healthcare Distribution, as an account manager for ADP Totalsource and as an entry-level employee with Walgreen Co. None of the jobs required an MBA, or progress toward obtaining an MBA. Nevertheless, Hart claimed his MBA program tuition as an unreimbursed employee expense on Schedule A of his 2009 income tax return. The Internal Revenue Service disallowed the deduction.

The taxpayer contended that he worked in the specialized business of selling oncology pharmaceuticals and that his enrollment in the MBA program allowed him to obtain the jobs he landed in 2009. The court, however, concluded that this was not enough to permit him to claim the deduction. Both the tax laws and regulations governing unreimbursed business deductions require a taxpayer to be “established in a trade or business” before he may deduct any business expenses. The facts in Hart’s case did not prove he was established as a salesman of cancer drugs. To be established in a business or trade, a taxpayer must engage in that business on a considerably continuous and regular basis. The court looked unfavorably on Hart’s 2009 resume. The taxpayer’s first job lasted four months, and the second lasted only seven weeks, before Hart spent the final three months of the year in his third position.

Of the taxpayer’s three positions, only the first two helped support his claim. Hart failed to connect his Walgreen position to the business or trade of selling oncology pharmaceuticals. As a result, the taxpayer had less than six months of working in positions related to the trade or business he asserted as his basis for claiming the deduction. The court noted that the taxpayer was undeniably qualified to work in the field of cancer pharmaceutical sales, but that qualification alone was not enough; rather, a taxpayer must carry on the business on a “continuous and regular” basis. Hart’s intermittent 2009 employment in the field of cancer drug sales was not enough to satisfy that standard.

The federal tax code and regulations permit taxpayers to claim deductions for a wide variety of expenses they incur in the furtherance of their businesses. These deductions have their limits, though, and understanding what is, and is not, allowed is essential to maximizing one’s deductions without incurring a deficiency. For assistance and guidance ensuring that you are claiming the deductions to which you are entitled, consult the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. Their skill and experience can help make the most from your business expenses and other deductions. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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