Do education expenses qualify as business expenses?

Your Guide to State, Local, Federal, Estate + International Taxation

education expenses, business expenses, deduction, taxI recently ran across a court case (Czarnecki v. The United States) that addressed the deductibility of education expenses as business expenses. Czarnecki, an engineer, amended his 2010 tax return to deduct expenses related to the researching and writing of his doctorate thesis as ordinary and necessary business expenses. The resulting refund, however, was denied by the IRS, prompting Czarnecki to file a claim in the U.S. Court of Federal Claims.

When determining whether he could deduct the expenses, the court looked at a few criteria.

  1. Did the expenses maintain or improve skills required in the taxpayer’s employment?
  2. Were the expenses an express requirement of the employer or required by law or regulations to maintain a license to practice?

It would appear that a Ph.D. in structural engineering would improve Czarnecki’s professional skills; however, there is another caveat when it comes to deducting education expenses. In order to be deductible, the expenses cannot qualify the taxpayer for a new profession. In this case, the government argued that the Ph.D. qualified him to become a professor at a university. Czarnecki countered that this was not his intention and that having a Ph.D. was not the only requirement to becoming a professor; however, the court sided with the government in that this was a significant hurdle in qualifying.

In addition, he faced a few other roadblocks. The memorandum opinion indicates Czarnecki did not sufficiently demonstrate how his doctorate studies improved the skills necessary for his employment and that there was no requirement by his employer or any regulatory agency to obtain any sort of continuing professional education. Unfortunately, Czarnecki had too many issues going against him and his expenses were determined to be nondeductible.

When writing this blog, I found some other interesting cases of times where taxpayers succeed in claiming education expenses.

  • A commercial pilot was able to deduct the cost of operating a small aircraft on the grounds that it helped him maintain his flying skills.
  • Physical education teachers were able to deduct the cost of learning and playing racquetball. However, memberships at racquetball facilities were deemed personal expenses and, therefore, nondeductible.
  • An adult education discussion leader was able to deduct educational expenses related to her master’s degree in psychology based on the logic that the further education helped improve skills needed in her employment. Interestingly enough, it was mentioned that the higher education qualified her to become a school guidance counselor, but the court found that the position of guidance counselor did not constitute a new profession since the tasks and responsibilities were substantially the same as her role as an adult education discussion leader.

Richard Christensen