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Tax Court Allows Deduction for Cost of MBA Degree

January 21, 2010

Those who are pursuing an MBA, or would like to but are worried about the high cost of tuition, can take heart from a recent Tax Court ruling.

Maryland nurse Lori Singleton-Clarke won a case last month in Tax Court against the IRS. The court found that she had properly deducted the $15,000 cost of her MBA from an online school, the University of Phoenix. The case was recently highlighted in both The Wall Street Journal and The New York Times. The case could set a precedent for other MBA seekers who could use some help with college expenses. However, not everybody would be able to qualify for the deduction, according to the ruling.

Students need to be able to prove that they were already performing the tasks and activities of their trade or business before commencing the MBA. The degree also has to help them maintain or improve their skills in that business.

In Singleton-Clarke’s case, she had worked for one year as a quality control coordinator and had more than 20 years of directly related work experience, “gaining vast clinical and managerial knowledge in acute and sub-acute health care settings, before beginning the University of Phoenix MBA/HCM program,” according to Tax Court Judge Stanley Goldberg.

The Tax Court ruling could prove to be a boon for not only MBA candidates, but for online education providers as well. However, don't expect it to apply to other kinds of degrees, especially law degrees because the judge actually cited precedent that disqualified law degrees on the grounds that they qualify a taxpayer for a new business or trade, whereas an MBA "is a more general course of study that does not lead to a professional license or certification."

I'll leave it to future lawyers and law students to argue that one in front of the judge.

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