T.C. Summary Opinion 2009-182
UNITED STATES TAX COURT
LORI A. SINGLETON-CLARKE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27975-07S. Filed December 2, 2009.
Lori A. Singleton-Clarke, pro se.
Brian S. Jones, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
section references are to the Internal Revenue Code in effect for
- 2 -
the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Respondent determined a Federal income tax deficiency of
$2,126 for 2005. After concessions, the sole remaining issue for
decision is whether petitioner is entitled to deduct $14,787 in
education expenses she paid in 2005 in connection with pursuing a
master of business administration degree with a specialization in
health care management (MBA/HCM).
Background
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. Petitioner resided in
Maryland when she filed her petition.
I. Petitioner’s Job History
Petitioner earned a bachelor of science degree in nursing
(BSN) from New York University in 1984. Petitioner became a
registered nurse (RN) and for the next 24 years worked in various
capacities for a number of hospitals, medical centers, and long-
term care facilities.
From 1984 to 1993 she worked initially as an acute bedside
clinical nurse and later as a team leader supervising nurses
providing acute bedside care. From 1993 to 2004 she held various
nursing management positions of increasing responsibility,
eventually serving as a director of nursing for a 150-bed
- 3 -
subacute long-term care facility, responsible for “24/7”
management of 110 nurses plus technicians. From 2004 to 2008
petitioner worked sequentially at three different hospitals.
Though her titles were different, her tasks, activities, and
responsibilities were nearly identical, concentrating in a
nonsupervisory capacity as a quality control coordinator.
Overall in her 24 years of work, petitioner has earned six
significant awards, including three citations of merit from the
Governor of Maryland. The three jobs from 2004 to 2008 were a
step down in pay and in status and a purposeful decrease in
responsibilities because petitioner wanted more time to focus on
some personal matters. However, because the three jobs and their
associated hiring requirements are central considerations in this
case, they are detailed below.
A. Civista Medical Center
From 2004 to 2007 petitioner worked for Civista Medical
Center (Civista), a 108-bed acute care community-based hospital
in Maryland. Her job title was quality improvement coordinator
and her responsibilities were to coordinate the quality
improvement and risk management activities for the hospital. In
this role, petitioner developed and analyzed quality and risk
management reports, and she investigated complaints from and
implemented improvements for patients, visitors, nurses, and
doctors. She reported to the director of quality management. To
- 4 -
qualify for the job, the minimum education and experience
requirements were “a Bachelor of Science degree in Nursing or
equivalent education and experience. One year experience in
Quality Assurance, Risk Management, or Nursing Management
preferred.” The position also required candidates to be
“currently licensed as a RN in the State of Maryland.”
Civista underwent a change in leadership, causing petitioner
to switch to a new employer, Children’s National Medical Center
(Children’s) in Washington, D.C., with a new title, but
continuing essentially the same duties she performed at Civista.
B. Children’s National Medical Center
From 2007 to 2008 petitioner worked for Children’s. Her job
title was center outcomes coordinator. Her responsibilities were
similar to the ones she had at Civista, developing a systemic
approach to measuring and improving outcomes for patients,
physicians, and employees. The job requirements stated:
“Bachelor’s in Nursing or health related field required; Master’s
in Public Health preferred. Two years quality improvement
experience in a hospital setting and three years clinical
experience preferred.”
Petitioner’s 2-hour commute to Children’s proved to be
onerous. She made a lateral switch to St. Mary’s Hospital (St.
Mary’s) to shorten the commute, resulting in another decrease in
pay.
- 5 -
C. St. Mary’s Hospital
Petitioner began working at St. Mary’s on September 8, 2008.
Her title is performance management coordinator, and again
similar to her responsibilities at Civista and Children’s, her
duties focus on coordinating, planning, and implementing the
Hospital’s performance improvement activities. She reports to
the director of quality control, who in turn reports to the vice
president for quality.
The job qualifications of a performance management
coordinator at St. Mary’s are, in pertinent part:
Registered Nurse Licensure required. B.S. Health
Care Administration required--Masters preferred.
Registration in the State of Maryland (MAHQ) and
National (NAHQ) Associations. Previous experience in
clinical health care including direct experience in
Performance Improvement. Experience with Risk
Management and/or utilization review desired.
II. The MBA/HCM
Petitioner began taking courses at the University of Phoenix
in March 2005, graduating in April 2008 with an MBA/HCM. She
chose the University of Phoenix because the institution allowed
students to complete the program via online courses, which was a
major priority for petitioner.
Petitioner enrolled in the program to become more effective
in her then-present duties. She realized that nursing had
evolved greatly in the 24 years since she earned her bachelor’s
degree, and she felt disadvantaged working with highly educated
- 6 -
doctors. Petitioner believed that although an MBA was not
required for her job, the degree would give her greater
credibility and the courses would make her more effective in her
present and future role as a quality control coordinator.
The University of Phoenix MBA/HCM provides students “with
the business management skills needed to manage successfully in
today’s health care delivery systems.” The program features
courses in “health care organizations, health care finance,
quality and database management, health care infrastructure, and
health care strategic management.” Petitioner did well in her
course work, graduating with a 3.57 grade point average.
Petitioner paid the entire cost of the program. None of her
employers had a reimbursement policy for the MBA/HCM program.
III. The Notice of Deficiency
Petitioner timely filed her 2005 Federal income tax return
using the services of a paid preparer. Respondent examined the
return and in a notice of deficiency determined a deficiency in
Federal income tax of $2,126. Respondent disallowed $1,580 of
petitioner’s $1,620 in noncash and cash charitable contributions,
which petitioner conceded. Respondent also disallowed all of
petitioner’s miscellaneous itemized deductions, consisting of
$180 in tax return preparation fees and $14,787 in unreimbursed
employee business expenses for education expenses. Respondent
- 7 -
later conceded the tax return preparation fees, leaving the
education expenses as the sole point of contention.
Discussion
I. Burden of Proof
In general, the Court presumes that the Commissioner’s
determination set forth in a notice of deficiency is correct, and
the taxpayer bears the burden of showing that the determination
is in error. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,
115 (1933). Under section 7491(a) the burden may shift to the
Commissioner regarding factual matters if the taxpayer produces
credible evidence and meets the other requirements of the
section. Petitioner did not argue that she satisfied the
elements for a burden shift, but even if she did, the
consideration of a burden is moot here because no factual issues
are in dispute. In other words, section 7491(a) is inapplicable
because we decide this case entirely by application of the law to
undisputed facts.
II. Deductions in General
Deductions are a matter of legislative grace, and taxpayers
must satisfy the statutory requirements for claiming the
deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). Taxpayers may deduct ordinary and necessary expenses
that they pay in connection with operating a trade or business.
- 8 -
Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004).
Generally, the performance of services as an employee constitutes
a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377
(1970). To be ordinary the expense must be of a common or
frequent occurrence in the type of business involved. Deputy v.
du Pont, 308 U.S. 488, 495 (1940). To be necessary an expense
must be appropriate and helpful to the taxpayer’s business.
Welch v. Helvering, supra at 113. The expenditure must be
“directly connected with or pertaining to the taxpayer’s trade or
business”. Sec. 1.162-1(a), Income Tax Regs.
For such expenses to be deductible, the taxpayer must not
have the right to obtain reimbursement from his employer. See
Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), affg.
T.C. Memo. 1984-533. Section 262(a) disallows deductions for
personal, living, or family expenses.
Section 1.162-5, Income Tax Regs., Expenses for Education
(the regulation), interpreting section 162, Trade or Business
Expenses, governs whether a taxpayer may deduct education
expenses. The validity of this longstanding regulation is not in
dispute. The regulation provides that a taxpayer may deduct
education expenses as ordinary and necessary business expenses
if the education--
(1) Maintains or improves skills required by the
individual in his employment or other trade or
business, or
- 9 -
(2) Meets the express requirements of the
individual’s employer, or the requirements of
applicable law or regulations, imposed as a condition
to the retention by the individual of an established
employment relationship, status, or rate of
compensation.
Sec. 1.162-5(a)(1) and (2), Income Tax Regs.
Conversely, the regulation provides that if the education
qualifies the individual for a new trade or business, then the
education expenses are not deductible because the education is a
personal expense or constitutes an accumulation of personal
capital. Sec. 1.162-5(b)(3), Income Tax Regs.
Whether the education qualifies the taxpayer for a new trade
or business is an objective inquiry analyzing the tasks and
activities the taxpayer was able to perform before the education
in comparison to those the taxpayer was qualified to perform
afterward. Glenn v. Commissioner, 62 T.C. 270, 275 (1974);
Weiszmann v. Commissioner, 52 T.C. 1106, 1110 (1969), affd. per
curiam 443 F.2d 29 (9th Cir. 1971). In other words, the relevant
standard is whether the education objectively qualifies the
taxpayer for a new trade or business. Robinson v. Commissioner,
78 T.C. 550, 554-556 (1982); Glenn v. Commissioner, supra.
Accordingly, the taxpayer’s subjective intent in undertaking the
education is not relevant, and likewise it is not material
whether the taxpayer does in fact become employed in a new trade
or business. Burnstein v. Commissioner, 66 T.C. 492, 495 (1976);
Bodley v. Commissioner, 56 T.C. 1357, 1360 (1971).
- 10 -
III. Application of the Law to Petitioner’s Factual Situation
A. Petitioner’s New Job at St. Mary’s
Respondent contends that without receiving the MBA/HCM in
April 2008 petitioner would not have obtained her final job, the
one she started in September 2008 at St. Mary’s, because the St.
Mary’s job description, in addition to requiring an RN license,
which petitioner already possessed, required at least a bachelor
of science in health care administration, which petitioner had
not previously earned.
Though the titles of the jobs varied, petitioner’s three
jobs since 2004 were nearly identical, requiring serving as a
quality control coordinator at acute care hospitals and medical
centers. We believe that St. Mary’s would have gladly hired
petitioner as a performance management coordinator even without
the MBA/HCM. All three quality control positions required an RN
license or a bachelor’s in nursing, with clinical or risk
management experience; credentials which petitioner possessed.
The first two employers, Civista and Children’s, had hired
petitioner without the MBA/HCM. Further, petitioner was a
multiple award winner, having received recognition three times
from the Governor of Maryland and from three other prominent
organizations. Moreover, petitioner had worked her way up to
serving as a director of nursing responsible for 110 nurses plus
additional technicians, clearly indicating high competence. All
- 11 -
three quality control positions, while important, were a step
down in status and pay from her former duties. For all of these
reasons, we find that the MBA/HCM may have been a helpful
addition to her qualifications, but was not an essential
prerequisite for petitioner to secure the position at St. Mary’s.
B. Whether an MBA Qualifies Taxpayers for Any New Trade
or Business
The final remaining inquiry then is whether as an objective
matter the MBA/HCM qualifies petitioner for any new trade or
business, not just the particular job at St. Mary’s that she
acquired. Respondent contends that the MBA/HCM does qualify
petitioner for a new trade or business, because in respondent’s
words, under the regulation “the tasks and activities she was
qualified for before she obtained the degree are different than
those which she is qualified to perform afterwards”. We
disagree.
An MBA degree is different from a degree that serves as
foundational qualification to attain a professional license. For
instance, this Court had denied deductions for law school
expenses, because a law degree qualifies a taxpayer for the new
trade or business of being a lawyer. See, e.g., Bodley v.
Commissioner, supra; Weiler v. Commissioner, 54 T.C. 398, 401-402
(1970).
An MBA is a more general course of study that does not lead
to a professional license or certification. Allemeier v.
- 12 -
Commissioner, T.C. Memo. 2005-207. This Court has had differing
outcomes when deciding whether a taxpayer may deduct education
expenses related to pursing an MBA, depending on the facts and
circumstances of each case. The decisive factor generally is
whether the taxpayer was already established in their trade or
business.
For example, in the following two cases we held that the
taxpayers were not entitled to deduct their MBA expenses. In
Link v. Commissioner, 90 T.C. 460, 463-464 (1988), affd. without
published opinion 869 F.2d 1491 (6th Cir. 1989), the taxpayer had
not established a trade or business. After graduating with an
undergraduate degree in May 1981, he worked during the summer but
then promptly commenced his MBA coursework in September 1981.
Similarly, in Schneider v. Commissioner, T.C. Memo. 1983-753, the
taxpayer, after graduating from West Point, served honorably in
the Army for 5 years before resigning from active duty with the
rank of captain and immediately starting in Harvard’s MBA
program. Although the taxpayer established outstanding
management experience in the Army, he had never worked in
business, and therefore we decided his “work as an Army officer
is a different trade or business from the consulting business for
which his course of study at Harvard prepared him.” Id.
In contrast, in Sherman v. Commissioner, T.C. Memo. 1977-
301, we held that another former Army officer was entitled to
- 13 -
deduct the expense of his Harvard MBA. The difference is that
the former officer in Sherman had worked for 2 years as a
civilian employee after resigning his Army commission and before
matriculating to Harvard. Moreover, the duties of the taxpayer
in Sherman during his 2 years of civilian work included
formulating and monitoring management plans and reviewing and
evaluating policies involving purchasing, inventory control, and
personnel management. These were the types of subject matters
taught in the MBA program.
Two other cases also illustrate situations where an MBA did
not lead to a new trade or business. In Allemeier v.
Commissioner, supra, before beginning an MBA program, the
taxpayer had already worked 3 years for a pediatric orthodontic
laboratory, during which time his responsibilities expanded to
include designing marketing strategies for additional products,
organizing informational seminars, and traveling extensively to
conventions to lead seminars. This Court held that the
taxpayer’s trade or business did not significantly change because
the MBA merely improved preexisting skills for the same general
duties he was already performing before enrolling in the MBA
program.
Likewise, in Blair v. Commissioner, T.C. Memo. 1980-488, the
taxpayer initially completed 1 year of undergraduate coursework.
She then spent the next 13 years concentrating on raising a
- 14 -
family while also working for small companies, gaining the
equivalent of 5-1/2 years’ experience in mostly clerical and
secretarial duties. She also acquired some familiarity with
bookkeeping, payroll, and personnel matters. Over the next 3
years the taxpayer earned a bachelor of arts degree in English,
and then she was hired by a large international corporation,
where she worked for a little more than 1 year as a personnel
representative before commencing her MBA. The corporation
promoted the taxpayer to personnel manager within 11 months after
starting the 2-year MBA program. This Court held that “under any
realistic interpretation” petitioner’s new duties as a personnel
manager did not constitute a new trade or business because she
was already engaged in the same type of work, with the only major
difference being that as a personnel manager she made decisions
while as a personnel representative she made only
recommendations. Id. Neither the difference in duties nor the
new title was enough to constitute a new trade or business.
Analyzing petitioner’s situation, her facts and
circumstances far more closely resemble the cases that allowed a
deduction for pursuing an MBA. Petitioner is unlike the student
in Link v. Commissioner, supra, who went straight from his
undergraduate degree into an MBA program, and the officer in
Schneider v. Commissioner, supra, who went straight from the Army
into an MBA program. Petitioner is considerably closer in
- 15 -
circumstance to the taxpayers in Sherman v. Commissioner, supra,
Allemeier v. Commissioner, T.C. Memo. 2005-207, and Blair v.
Commissioner, supra, who had 2 years, 3 years, and 1 year,
respectively, of experience performing tasks and activities in
their chosen professions before beginning their MBA programs.
The facts in favor of petitioner are even stronger than those in
the three cases above where the taxpayers prevailed. Petitioner
worked for 1 year as a quality control coordinator and had more
than 20 years of directly related work experience, gaining vast
clinical and managerial knowledge in acute and subacute health
care settings, before beginning the University of Phoenix MBA/HCM
program.
In summary, the MBA/HCM may have improved petitioner’s
preexisting skill set, but objectively, she was already
performing the tasks and activities of her trade or business
before commencing the MBA. For all of the above reasons, we find
that petitioner’s MBA/HCM did not qualify her for a new trade or
business, and we hold, therefore that petitioner may deduct her
education expenses for 2005.
To reflect our disposition of the issues,
Decision will be entered
under Rule 155.