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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, 8
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Last modified: May 25, 2011