MBA Students May Lose Tax Deduction

The days of being able to deduct the expense of attaining a master's degree in business administration may be over.

The U.S. Tax Court ruled against Tracy McEuen earlier this month, mostly because she didn't return to her previous job after earning her degree. McEuen had sought to deduct $20,317 in MBA-related expenses.

Current rules allow MBA candidates to deduct school expenses if they will use the degree to enhance their skills in their current job or the job they left to go to school, Dow Jones Newswires reported, adding that school costs can total $40,000 a year at the best schools.

In McEuen's case, the Tax Court ruled against her because she used the degree to change careers and the degree was a requirement for the new job.

"We definitely feel we have a legitimate position," McEuen told Dow Jones Newswires. The 34-year old, who obtained her MBA from Northwestern University's Kellogg School of Management in Evanston, IL, and is now living in Evansville, IN. Before attending graduate school she worked as a financial analyst. Today she is a marketing manager. "A good portion of my education was directly related to what I was already doing."

The verdict in her case will be treated like a “private-letter” ruling, which does not bind other courts, but is available for their consultation. However, it furthers a trend of judges and the IRS ruling against MBAs in future cases.

"It's one more case in a line of unbroken cases going against the MBAs," Robert Willens, a tax and accounting expert at Lehman Brothers Holdings Inc., told Dow Jones.

He added that those claiming the MBA deduction may be more susceptible to IRS audits. "Quite frankly, it's pretty much over," said Willens, who also teaches finance at Columbia Business School in New York. "It's going to be virtually impossible to take a deduction for education expenses," he said. "I'm having a hard time coming up with a scenario where you can claim a deduction."

You may like these other stories...

Being an accountant doesn't mean you're giving investment advice to clients. However, at tax time, accountants often have to deal with the results of any investment advice clients obtained during the year—the...
Anti Burger Kings: Seven US companies shrinking tax the old-fashioned wayBurger King’s decision to combine with Canadian donut shop Tim Hortons is renewing controversy over the lengths some US companies will go to...
A new report released on Tuesday found that the US airline industry receives nearly $1 billion in tax breaks annually from states for jet fuel.The study, conducted by UNITE HERE International Union, a labor union that...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 26
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.