Taxing Lessons Case Summaries

Case — Deductibility of Education Expenses

Thanks for sharing!
3 minute read

TL Case Summ


Are tuition and fees incurred in obtaining a Master of Business Administration (MBA) degree deductible as ordinary and necessary business expenses?


Taxpayer Says: The MBA was necessary to maintain or improve skills in working as an entrepreneur, project manager, or supervisor in the beverage industry, and the related expenses are deductible.

Internal Revenue Service Says: The MBA qualifies the taxpayer for a new trade or business, so the tuition and fees are nondeductible personal expenses.


From Federal Tax Regulation 1.162-5(a): Expenditures by an individual for education are deductible as ordinary and necessary business expenses if the education maintains or improves skills required by the individual in her employment or other trade or business.

From Federal Tax Regulation 1.162-5(b): Educational expenses incurred to meet the minimum educational requirement for qualification in a taxpayer’s  trade or business and those which qualify a taxpayer for a new trade or business are considered personal and are not deductible as ordinary and necessary business expenses.

From Schwartz v. Commissioner, 69 T.C. 877, 889 (1978): A taxpayer must demonstrate a direct and proximate relationship between the education and the skills required in her employment.

From Robinson v. Commissioner, 78 T.C. 550, 552 (1982): When education qualifies a taxpayer to perform significantly different tasks and activities from those she could perform before, that education is deemed to qualify the taxpayer for a new trade or business.


You can generally take an itemized deduction for educational expenses, including expenses that lead to a degree, if you need the education to maintain or improve your present skills or if the education is imposed as a condition of employment. However, the expenses are not deductible when the education qualifies you for a new job or is necessary to meet the minimum requirements for a job.

The dispute arose because, while an advanced degree such as an MBA meets the requirement of maintaining or improving skills, it also creates qualifications to enter a new trade or business, even when there is no intention to do so.

In this case, the taxpayer had a bachelor of engineering degree and worked as a project manager. She believed acquiring the MBA improved her project management skills. The IRS takes the position that the MBA qualified the taxpayer for a new trade or business, since engineering project management and business administration are not the same trade or business.


Make your selection, then see “The Court’s Decision” below for a full explanation

For the or for the


Download (PDF, 28KB)


HL Carpenter, an experienced investor and a CPA, specializes in reader friendly articles on taxes and investing for individuals and small businesses, and publishes two newsletters: Taxing Lessons and Top Drawer Ink. Visit and

This information should not be considered legal, investment or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment or tax advice. Always consult your legal, investment and/or tax advisor regarding your personal situation.


Other posts you might enjoy

Decisions — Taxing choices Image source: Free Picture © Semen Barkovskiy Dreamstime Stock Photos   How many options can you consider before you find yourself longing for simplicity? Whatever your answer, part of the desire for less complexity comes from not wanting to make the wrong choice. That's especially true ...
Decisions — Where’s your refund? Image source: By U.S. National Archives and Records Administration, Public domain, via Wikimedia Commons Where's your refund? Possibly helping to reduce the federal budget deficit, if you failed to file a return to get an overpayment back within the applicable time period. That's because the gov...
Case — Fun and games Image source: (public domain image) THE QUESTION Does an organization that offers a recreational activity to achieve a charitable purpose qualify as a charitable organization? THE DISPUTE Taxpayer Says: It operates for charitable purposes because it provides relief for the p...
Case — Carry On THE QUESTION Can an IRA deduction that is disallowed due to active participant status in an employer plan be carried forward and deducted in a future year? THE DISPUTE Taxpayer Says: The 2008 IRA contribution was an “excess contribution” and should be allowable as a deduction in 2010. Intern...
Sorry, wrong answer :(
Right answer!
For the IRS. The proper focus is on the effect the MBA had on the jobs the taxpayer was qualified to perform. After receiving the MBA, she was qualified to perform business, management, finance, and marketing tasks she was not qualified to perform before. The expenses are nondeductible.