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alleges, and her master's degree expenses were incurred to
maintain and improve her skills. In the alternative, she asserts
that the expenditures were required as a condition to the
retention of an existing employment relationship, status, or rate
of compensation.
Section 162 allows a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Although section 162 does not
explicitly mention expenditures for education, section 1.162-5,
Income Tax Regs., provides objective tests for determining
whether such expenditures are deductible. Diaz v. Commissioner,
70 T.C. 1067, 1072-1073 (1978), affd. without published opinion
607 F.2d 995 (2d Cir. 1979); Taubman v. Commissioner, 60 T.C.
814, 817 (1973).
The general rule of the regulation allows the deduction of
educational expenses if the education maintains or improves the
skills required by the individual in his or her employment or
other trade or business, or meets the express requirements of the
employer or applicable law. Sec. 1.162-5(a), Income Tax Regs.
Section 1.162-5(b)(2) and (3), Income Tax Regs., provides,
however, that if a taxpayer is pursuing a course of study that
meets the minimum educational requirements for qualification in
that employment or will qualify her for a new trade or business,
the expenditures are not deductible.
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Last modified: May 25, 2011