Did you read the recent Wall Street Journal Article about Lori Singleton-Clarke? She is a nurse who brought her own case to Tax Court after IRS refused to allow her to deduct her MBA. She was pursuing an MBA with a specialization in health care management. IRS disallowed $14,787 in education expenses on her 2005 tax return. She did not take this sitting down.
Nurse Singleton-Clarke scored a Summary Opinion from the Court, which clearly states it cannot be used as a precendent for any other case. Let's discuss how to use this to your advantage.
Let's start with the judge - Stanley Goldberg. If you read the WSJ article, it's clear that he was really impressed with Nurse Singleton-Clarke. We all have our favorite clients. Judges are no different. They will like some petitioners particularly well - and remember them, What impressed him the most? The same thing that should impress a judge or auditor or appeals officer about your work.
She was organized, well-prepared and articulate.
In other words, she did her homework.
When you walk into an audit, appeals hearing or Tax Court, think of it as a debate with a respected, well-prepared opponent.
- What will they object to in your client's tax return or records?
- What are they most likely to disallow?
Answer those two questions by looking at your case with objective, critical eyes. Then start digging. Either dig up all the receipts or replacement substantian to support the numbers; or start doing your research. When you do your research and prepare your report, don't just cite precendent. Either print out the cases, or at the very least, copy the specific part of the citation into your report.
If, as in this case, a big part of your proof is the client's background and expertise in her area, get details and proof of the expertise, successes and levels of responsiblity.
Read the judge's opinion and explanation. He spells out specifically that based on this woman's career achievements, it was clear the MBA did not make a difference to her job acquisition potential. Her own accomplishments far outshone any degrees. But the education did serve to help bring her more current on changes in the health care field.
Sometimes, even when you don't have much of a case, you can win something for your client. I was involved in a Tax Court petition many years ago about alimony. The divorce agreement clearly stated that neither he nor she will pay or receive alimony. Yet HE took a deduction of over $15,000 for having paid off her credit card debt. Let me tell you, I would NEVER have taken that deduction on any return I would have prepared. I would probably have kicked him the heck out of my office. (He was rude and pushy and overbearing, to boot.) But, my boss took the case. So, I did my best. Not being much of a researcher, I paid a friend to do the research. He pulled up copies of lots of interesting cases. There were two cases that supported my client's position (faintly). So I wrote up an organized, brief report stating my case. The Appeals Officer (Tax Court cases are sent to Appeals to resolve) was all prepared to laugh me out of his office. (It seemed he'd spent time reading the IRS files, which showed my client in an ugly light.) He didn't laugh. He was so impressed with the information, the presentation, and the copies of the cases provided - he waived all the penalties (and the related interest disappears, too). That saved the client over a third of the total assessment - thusands of dollars.
What's in it for you?
So let's get back to this case, shall we. How can you use this to your advantage?
Judge Goldberg goes on to discuss cases where MBA costs were denied and where they were sustained. Read the cases. This will help you determine if your client's educations costs will survive Tax Court, if need be.