T.C. Memo. 2003-175
UNITED STATES TAX COURT
GEORGE W. WARREN AND FLORENCE J. WINTERHELD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8125-00. Filed June 12, 2003.
George W. Warren and Florence J. Winterheld, pro se.
Cynthia Olson and James Gehres, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined a deficiency of $3,954
and an addition to tax of $745 under section 6651(a)(1) in
petitioners’ Federal income tax for 1994.1 After concessions,
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Amounts are rounded to
the nearest dollar.
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the issue for decision is whether petitioners are entitled to
deduct education expenses incurred in 1994.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
the petition, petitioners resided in Chinook, Montana. At the
time of trial, George Warren (hereinafter, petitioner) was 62
years old.
In 1986, petitioner decided to pursue a career in the
ministry of the United Methodist Church (UMC). The rules for
each level of candidacy can be found in the UMC’s 1992 Book of
Discipline.2 There are various levels of candidacy. The levels,
in ascending order, are: (1) Certified candidate, (2) local
pastor, (3) associate member, (4) probationary member, and (5)
member in full connection. Petitioner will be unable to become a
member in full connection because of the time commitment, as
petitioner will be forced to retire at the age of 70.
2
The 1992 Book of Discipline is applicable to the year in
issue. These rules changed in 1996.
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From 1993 to 1996, petitioner was a part-time local pastor.3
The levels relevant to the year in issue are described as
follows:
1. Certified Candidate: This level requires
graduation from an accredited high school or receipt of
a certificate of equivalency.
2. Local Pastor: A local pastor may be a student
or a part-time or full-time position.4 This level
requires attendance at a 2-week licensing school or
completion of one-third of the work necessary for a
master of divinity degree.
This position is appointed annually. Local
pastors continue in the course of study for ordained
ministry until they have completed the educational
requirements for associate or probationary membership.5
After completion of the educational requirements for an
associate membership, however, an individual may choose
to remain a local pastor. A local pastor may lead the
sacraments (i.e., baptism, communion) at the appointed
parish.
3. Associate Member: To be considered for
associate membership, a candidate must have reached the
age of 35 and served 4 years as a full-time local
pastor. This level also requires completion of the
educational requirements for local pastors, completion
of the 5-year course of study for ordained ministry,
and completion of at least 60 semester hours toward a
bachelor’s degree.
3
Since 1996, petitioner has been a full-time local pastor,
and, as of June 2002, was being considered for associate
membership.
4
Local pastors may be part time if, for example, a church
cannot afford a full-time local pastor.
5
Generally, a full-time local pastor must complete these
educational requirements within 8 years and a part-time pastor
within 10 years.
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In 1992, petitioner became a certified candidate. Prior to
entering the candidacy for ministry, petitioner accumulated over
60 undergraduate semester hours from various schools, which met
the minimum undergraduate educational requirements to become an
associate member.
Petitioner decided that he needed to improve his ministry
skills. Such skills included interpersonal skills, relational
skills (e.g., working with situations in which parishioners could
be involved), sermon writing skills, leadership skills, and
management skills. In 1994, petitioner decided to take courses
at the University of Great Falls.6 These courses were not
required for petitioner to continue as a local pastor. In
December 1995, petitioner earned a bachelor’s degree in human
services.
On their joint 1994 tax return, petitioners claimed a
deduction of $9,698 for “Continuing Education” on their Schedule
C, Profit or Loss From Business. The amount claimed represented
tuition, books, and course-related fees incurred and paid by
petitioner for the courses taken at the University of Great
Falls. In the notice of deficiency, respondent disallowed the
deduction, stating:
6
Examples of courses taken by petitioner include:
Introduction to Counseling, Internship in Ministry Practice,
Death and Dying as a Life Cycle, Modern Social Problems, The
Family, Community, Ethics in Human Services, Symphonic Choir,
Basic Writing, and Writing Strategies.
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Since you did not establish that the business
expense shown on your tax return was paid or incurred
during the taxable year and that the expense was
ordinary and necessary to your business, we have
disallowed the amount shown.
Respondent issued a supplemental report for the notice of
deficiency but continued to disallow this deduction in full.
OPINION
Deductions are a matter of legislative grace, and
petitioners have the burden of showing that they are entitled to
any deduction claimed.7 Rule 142(a); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Section 162(a) allows a deduction for all ordinary and
necessary expenses incurred in carrying on a trade or business.
Although this section does not explicitly mention expenditures
for education, the regulations provide an objective test for
determining whether such expenditures are deductible.8 Diaz v.
Commissioner, 70 T.C. 1067, 1072-1073 (1978). Education expenses
are 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
7
The parties do not argue that sec. 7491(a) is applicable.
8
The education expense regulation here relevant was
promulgated in 1967. It replaced a regulation that had been
promulgated in 1958. The 1958 regulation embodied a subjective
“primary purpose” test. The 1967 regulation replaced this with
an objective test, in particular, the qualification-for-a-new-
trade-or-business test embodied in sec. 1.162-5(b)(3), Income Tax
Regs. Taubman v. Commissioner, 60 T.C. 814, 817-819 (1973).
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employer imposed as a condition for the taxpayer’s continued
employment, status, or rate of compensation. Sec. 1.162-5(a),
Income Tax Regs.
Education 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 him which will lead to qualifying him
in a new trade or business.” Sec. 1.162-5(b)(3)(i), Income Tax
Regs. This is so even if the courses meet the express
requirements of the employer. Jungreis v. Commissioner, 55 T.C.
581, 591 (1970). It is immaterial whether the individual
undertaking the education intends to or does in fact become
employed in a new trade or business. Bodley v. Commissioner, 56
T.C. 1357, 1360 (1971).
Whether the education qualifies a taxpayer for a new trade
or business depends upon the tasks and activities which he was
qualified to perform before the education and those which he is
qualified to perform afterwards. Weiszmann v. Commissioner, 52
T.C. 1106, 1110 (1969), affd. per curiam 443 F.2d 29 (9th Cir.
1971). We have repeatedly disallowed education expenses where
the education qualifies the taxpayer to perform significantly
different tasks and activities. Browne v. Commissioner, 73 T.C.
723, 726 (1980); Glenn v. Commissioner, 62 T.C. 270, 275 (1974).
Further, the taxpayer’s subjective purpose in pursuing the
education is irrelevant, and the question of deductibility is not
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satisfied by a showing that the taxpayer did not in fact carry on
or did not intend to carry on a new trade or business. Burnstein
v. Commissioner, 66 T.C. 492, 495 (1976).
Respondent argues that the courses taken by petitioner
qualify him for a new trade or business, and that the expenses of
a college education are almost always nondeductible personal
expenses.
We conclude that the courses, which ultimately led to
petitioner’s bachelor’s degree, qualified petitioner in a new
trade or business. The courses taken by petitioner provided him
with a background in a variety of social issues that could have
prepared him for employment with several public agencies and
private non-profit organizations outside of the ministry.
Whether or not petitioner remains in the ministry is irrelevant;
what is important under the regulations is that the degree “will
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lead” petitioner to qualify for a new trade or business.9 Sec.
1.162-5(b)(3)(i), Income Tax Regs.
It may be all but impossible for a taxpayer to establish
that a bachelor’s degree program does not qualify the taxpayer in
a new trade or business.10 See Malek v. Commissioner, T.C. Memo.
1985-428. We stated in Carroll v. Commissioner, 51 T.C. 213, 216
(1968), affd. 418 F.2d 91 (7th Cir. 1969):
Millions of people must secure a general college
education before they commence their life’s employment,
and it is generally accepted that obtaining such
education is a personal responsibility in preparing for
one’s career. * * * Though his perseverance is to be
admired, we do not believe that he should receive tax
deductions not available to those who complete their
general college preparation before beginning their
career. Furthermore, a general college education has
more than economic utility. It broadens one’s
understanding and increases his appreciation of his
social and cultural environment.
9
In Glasgow v. Commissioner, T.C. Memo. 1972-77, affd. 486
F.2d 1045 (10th Cir. 1973), we allowed an ordained minister to
deduct the expenses involved in gaining an undergraduate degree.
The opinion notes that, as a general proposition, the costs of an
undergraduate college education are not deductible, but that an
exception was warranted under the circumstances involved in the
case. The case was decided under the 1958 regulations. See
supra note 8. These earlier regulations were subjective and
stressed the “primary purpose” for a taxpayer’s educational
expenditures. As a result, an educational expenditure which
qualified a taxpayer for a new trade or business would not be
disallowed as an ordinary and necessary business expense
deduction unless the education was undertaken primarily for the
purpose of obtaining a new position.
10
We note that the regulations deal specifically with
“teaching and related duties”. Sec. 1.162-5(b)(3)(i), Income Tax
Regs.
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We have no doubt that the courses petitioner took greatly
improved his skills in being a pastor, and that petitioner
intends to continue with the UMC. Unfortunately, we apply an
objective test in determining whether a course qualifies a
taxpayer for a new trade or business, Diaz v. Commissioner,
supra, and the courses taken by petitioner prepared him for
positions outside the ministry. See Meredith v. Commissioner,
T.C. Memo. 1993-250. We conclude that petitioner is not entitled
to a deduction for his educational expenses because the courses
qualified petitioner in a new trade or business.
In reaching our holding herein, we have considered all
arguments made, and to the extent not mentioned above, we
conclude them to be moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be
entered under Rule 155.