A Wall Street Journal article by Laura Saunders misleads taxpayers into thinking that a recent tax court case makes it easier to deduct the value of an MBA.

The article, Nurse Outduels IRS over MBA Tuition, appeared in the January 9, 2010 education section. Ms. Saunders opens by reporting that the taxpayer got a ruling “that could facilitate tens of thousands of students” deduct tuition for their MBA degrees. Not true.

Nor is it correct that “IRS’s rules on deducting work-related tuition are sophisticated and onerous,” as Ms. Saunders additionally reports.

The opinion by Special Trial Choose Stanley Goldberg follows existing tax court precedent on similar cases. There’s nothing remarkable or especially noteworthy about the case.

At stake in Singleton-Clarke v. Comm’r (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 during a management capability and was involved in quality management 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 replacement trade, basing its findings closely on the taxpayer’s employment history. The court conjointly cited to a few reported cases from 1977, 1980, and 2005 where the tax court allowed the deduction of MBA expenses under facts it found the same as the Ms. Singleton-Clarke’s.

Whereas the Singleton-Clarke case isn’t precedent, the cases it followed represent more than 30 years of reported precedent. Whether or not Singleton-Clarke were precedent, it wouldn’t amendment the law or build it potential for “tens of thousands of scholars” to deduct the cost of an MBA if they weren’t otherwise entitled.

Thus who can deduct tuition? 1st, the education has to improve the talents 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 replacement trade. These aren’t sophisticated or onerous rules. But they’re very reality-sensitive, and that makes them generally difficult to apply.

Education that ends up in skilled licensure is generally not deductible as a result of by definition it qualifies you for a brand new trade. You will be in a position to deduct tuition for your MBA if you have got an established area of work and the MBA improves your skills in that space of work.

If you have queries about whether or not you’ll be able to deduct the price of education, you ought to consult a tax attorney. The Wall Street Journal should additionally consult a tax attorney before it reports on tax matters.

The subsequent is an update to this article.

This text was shared with WSJ author, Laura Saunders, and her editor, Neal Templin. Ms. Saunders tried and true 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 College whom she says “helps MBA students making an attempt to require the tuition deduction”.

Ms. Saunders additionally asked if we have a tendency to’d seen the sidebar to her article. We have a tendency to had, and promised we have a tendency to’d 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 choice”, and that a lot of students “think they’ll qualify.”

We have a tendency to would have most well-liked to post Ms. Saunders’ entire email response therefore readers may view the full context of her comments, but her editor declined our request for permission to post the whole email. Willens failed to answer 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 specialists– they can. Certified Public Accountancy could be a subtle field with many gifted practitioners fluent in tax compliance, tax planning, and other areas involving tax. But, CPAs cannot offer legal advice.

Ms. Saunders and her editor printed an editorial regarding a court case and reported that it resulted during a major legal amendment affecting the tax returns of tens of thousand of people annually. They drew that conclusion while not consulting one legal expert. Some folks might be thrilled by the populist message that you’ll beat the IRS, but the public wasn’t served by the article’s wrong and irresponsible conclusions.

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