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1.162-5, Income Tax Regs., sets forth the guidelines for
determining those educational expenses incident to a taxpayer’s
trade or business which are deductible. Educational expenses may
be considered ordinary and necessary business expenses if the
education maintains or improves skills required by the taxpayer
in his employment or meets the express requirements of an
employer imposed as a condition for the taxpayer’s continued
employment, status, or rate of compensation. Sec. 1.162-5(a),
Income Tax Regs.
Educational expenses, however, are not deductible if they
are made by an individual for education which is part of a
program of study being pursued by her which will lead to
qualifying her in a new trade or business. Sec. 1.162-
5(b)(3)(i), Income Tax Regs. Such educational expenses are not
deductible even though the education may maintain or improve
skills required by the individual in her employment. Sec. 1.162-
5(b)(1), Income Tax Regs. Examples (1) and (2) of section 1.162-
5(b)(3)(ii) , Income Tax Regs., illustrate this rule:
Example (1). A, a self-employed individual
practicing a profession other than law, for example,
engineering, accounting, etc., attends law school at
night and after completing his law school studies
receives a bachelor of laws degree. The expenditures
made by A in attending law school are nondeductible
because this course of study qualifies him for a new
trade or business.
Example (2). Assume the same facts as in example
(1) except that A has the status of an employee rather
than a self-employed individual, and that his employer
requires him to obtain a bachelor of laws degree. A
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Last modified: May 25, 2011