In January 2010, The Wall Street Journal ran a story about the fight of nurse Lori Singleton-Clarke to deduct nearly $15,000  in business school tuition as an unreimbursed employee business expense on her federal income tax return. The twist to the story, besides the fact that she represented herself in U.S. Tax Court and won (after three years of IRS discussions), is that it lays out a road map for other students in deciding whether to deduct business school expenses.
While the U.S. Tax Court issued a summary opinion in the Singleton-Clarke case , in a similar case, Daniel R. Allemeier, the Tax Court judge issued a memorandum opinion, which implies that the judge thought the case did not involve a novel legal issue  and that the tax law in the area was well settled. Though tax court rulings do not create precedent that must be followed by every court, decisions like these are persuasive precedent and bode well for students in similar tax circumstances.
This was the case for alum Benjamin Post, MBA '08, who recently described his experience claiming the deductions on the mbaMission blog . "Sometime in 2006, a professional colleague forwarded me an article  that was of great benefit to me and several of my MBA classmates," Post explains. "This article discusses the deductibility of MBA tuition within the context of Daniel Allemeir’s tax dispute with the IRS, and it has ended up saving me (and some of my classmates) thousands of dollars." The IRS opened an investigation into his 2007 tax return, which Post successfully defended, and his deduction was allowed.
Why Would You Want to Claim a Deduction and What is a Reimbursed Business Expense?
Tax deductions are variable amounts of tax-code-specified expenses that you can subtract, or deduct, from your gross income when you compute your income taxes. As a result, tax deductions lower your overall taxable income, thus lowering the amount of income tax you owe. The exact amount of tax savings is dependent on the tax rate (sometimes called a bracket) you are in, and if you are affected by the alternative minimum tax .
As Kristina Zvinakis, a lecturer in the Department of Accounting explains it, tax deductions are allowed only by legislative grace; nothing is deductible unless the tax code provides for such a deduction. In the area of deductions, the IRS is especially concerned about taxpayers deducting what would otherwise be personal and, as such, non-deductible expenses. This makes sense given their focus on collecting sufficient tax revenue to support the operation of the federal government.
As Zvinakis puts it, "More deductions lower taxable income, which lowers tax liability payments, which lowers the revenues that the Treasury has to operate with."
So let's say you are a McCombs business student. Can you take this deduction?
It varies greatly by degree type and individual circumstances. For example, since an MPA degree allows you to sit for the CPA exam, it's highly unlikely MPA students would be able to claim this deduction, as this would be a minimum qualification for their field. The same would be true for many MBAs, particularly those who are transitioning in their career or who haven't established themselves in "trade or business" prior to entering the MBA program.
As a bachelor's degree is required for entry to most fields, undergraduate BBA students would be hard pressed to be able to show that they had a current field to "maintain and improve" in or that they weren't filling a minimum requirement. Most Ph.D.s would also be unable to claim this deduction, given that a doctorate is required for most faculty posts (which would make their degree a minimum requirement), unless they happen to teach somewhere where a master's is the norm, or if they are continuing in a career in industry.
However, for many part-time MBAs, some full-time MBAs, a few isolated Ph.D.s who are working while earning a Ph.D., or for any student who is self-employed and plans to stay that way, this is a deduction to consider.
"The code tries to be specific about what types of education expenses are deductible," says Zvinakis. "If your education prepares you for a new trade or business, or if it provides you a minimum quali