- 8 - We have repeatedly held that a taxpayer may not deduct fees paid and costs incurred to gain admission to a State bar under section 162(a). Sharon v. Commissioner, 66 T.C. 515, 527 (1976), affd. per curiam 591 F.2d 1273 (9th Cir. 1978); Ryman v. Commissioner, 51 T.C. 799, 801-803 (1969). We have based our holding, in part, on the rationale that since a taxpayer could reasonably expect the useful life of a license to extend beyond 1 year (i.e., indefinitely), the cost of such license is a non- deductible capital expenditure. Moreover, educational expenditures that are paid or incurred to meet the minimum educational requirements for qualification in a taxpayer’s trade or business or which qualify the taxpayer for a new trade or business are “personal expenditures or constitute an inseparable aggregate of personal and capital expenditures and, therefore, are not deductible as ordinary and necessary business expenses”. Sec. 1.162-5(b), Income Tax Regs. Likewise, the regulations under section 212 specifically prohibit the deductibility of “bar examination fees and other expenses paid or incurred in securing admission to the bar”. Sec. 1.212-1(f), Income Tax Regs. On the other hand, legal expenses are deductible under section 162(a) as ordinary and necessary business expenses if the litigation is directly connected with or proximately related to the taxpayer’s business. Bingham’s Trust v. Commissioner, 325 U.S. 365, 373-374 (1945); Rafter v. Commissioner, 60 T.C. 1, 8Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011