A Reexamination of the Deductibility of Graduate Business Educational Expenses

Homer L. Bates, PhD, CPA, and Bobby E. Waldrup, PhD, CPA

Recent activity in the courts has increased interest in the deductibility of graduate business educational expenses by the IRS. In “Deductibility of Advanced Business Degrees” (The CPA Journal, September 2005), Cynthia Bolt-Lee stated: “The courts and the IRS appear to be continuing their conservative approach when interpreting the requirements of qualifying deductible education expenses.” In the April 2006 Journal, the authors discussed the case of Daniel R. Allemeier v. Comm'r (TC Memo 2005-207), which permitted the taxpayer to deduct the tuition costs of his part-time MBA program (Homer L. Bates and Bobby E. Waldrup, “Deductibility of MBA Educational Expenses Under the Allemeier Opinion”). A December 2009 Tax Court ruling continued this more liberal interpretation of the deductibility of graduate business education expenses. In the Tax Court Summary Opinion (TC Summary Opinion 2009-182), the court held that a nurse administrator could deduct the nearly $15,000 in tuition incurred in earning an online MBA degree from the University of Phoenix. A further examination of the details of this important opinion, along with previous court decisions, will help advisors assist present and future MBA students in qualifying for this sometimes sizable deduction.