Thought this was pretty interesting.... http://online.wsj.com/article/SB10001424052748703535104574646582965101664.html Nurse Outduels IRS Over M.B.A. Tuition by Laura Saunders Monday, January 11, 2010 provided by The Wall Street Journal How One Woman Went to Tax Court and Won Deduction A Maryland nurse accomplished two rare feats in her battle with the Internal Revenue Service: She defended herself against the agency's lawyers and won, and she got a ruling that could help tens of thousands of students deduct the cost of an M.B.A. degree on their taxes. The U.S. Tax Court handed Lori Singleton-Clarke her victory last month, saying the 47-year-old Bryantown, Md., woman had properly deducted nearly $15,000 in business school tuition. The Tax Court ruling should make it easier for many other professionals to deduct the expense of a Master in Business Administration degree. After getting word of the court decision, "I nearly yelled the roof off the house," Ms. Singleton-Clarke says. "I still can hardly believe it." The IRS's rules on deducting work-related tuition are complicated and onerous, ultimately preventing most students from deducting their tuition. But this case clarifies the rules and will likely lead to more taxpayers taking the deduction, tax experts say. Few taxpayers decide to go toe to toe with the IRS as Ms. Singleton-Clarke did, arguing her case without a lawyer. For good reason: In 2009, individuals won only about 10% of about 300 such cases, according to data from Tax Analysts. Ms. Singleton-Clarke fought her case in Tax Court, a venue where taxpayers don't have to pay the contested tax before going to trial. The court has a special procedure for small cases. Some of the losers, such as several dozen tax protesters who defended the filing of frivolous returns, were tilting at tax windmills. Others were simply on the wrong side of the law, including a horse enthusiast who wanted to deduct his hobby losses, an unsuccessful comedian who tried to classify his expenses as business losses, and an attorney who claimed over $100,000 in medical deductions for his visits to prostitutes. Of the few who did prevail against the IRS, nearly half came to court on a single issue: requests for "innocent spouse" treatment that decouples a spouse from a partner who is a tax cheat. This provision has been used mostly to protect unknowing wives against their husbands' tax misdeeds. One of the spouses granted relief last year was formerly married to an investment banker who didn't pay his taxes after his bonus didn't come though. Ms. Singleton-Clarke's encounter with the tax system shows what it can take for one individual to prevail over the IRS against the long odds: favorable facts, obsessive organization, and fearlessness. She says she didn't have a lawyer because she couldn't afford one. Her odyssey began in 2006, when she filed her 2005 return. It showed just over $50,000 of income, several smaller deductions, and one large one—for $14,787 of expenses for an M.B.A. from the University of Phoenix, an online school. Ms. Singleton-Clarke deducted the tuition because her tax preparer told her she met the law's narrow definitions. When the IRS audited the return in late 2006, she conceded all the IRS's challenges to her deductions but one. She dug in her heels on the tuition deduction because, after looking at a complex diagram in IRS Publication 970, she believed she qualified for it. The audit process first involved several rounds of confusing IRS correspondence. "At one point I had three requests for the same records, each with a different contact name. I had to spend hours calling to figure out who needed what," says Ms. Singleton-Clarke, a steely but soft-spoken woman. After that she was summoned to an IRS office in downtown Washington where she had to provide more copies of her résumé, a job description, and other records. She felt overwhelmed and intimidated. Both the IRS's actions and her reactions are typical, says Christopher Bergin, president of Tax Analysts, a group that fights for tax-system transparency and since l972 has won a series of freedom-of-information cases against the IRS. "Without doing anything illegal, they muscled her. That's what they do. The pressure can be terrifying," he says. A spokesman for the IRS says that it never comments on issues with specific taxpayers. As Ms. Singleton-Clarke held fast to her conviction that she deserved the deduction, she drew on skills she developed as a nurse responsible for dealing with doctors who may have infringed hospital rules. That was why she studied for her M.B.A., she says: "I didn't want to feel outmatched by surgeons who didn't want to talk to me." When the IRS again denied her deduction by mail after her meeting with the agent, Ms. Singleton-Clarke wound up going to Tax Court to set a trial date. But when she came to court in November 2008, it seemed that everyone else had settled their cases: "There was just me by myself at one table and the [IRS] tax team of at another in a big courtroom." The tax team consisted of a two attorneys and several assistants or paralegals. Ms. Singleton-Clarke had been told to bring copies of her documents in triplicate, including a time line of her career. Judge Stanley Goldberg questioned her closely and complimented her on her record-keeping during the hour-long trial. "The whole time," she says: "I was thinking, here is this god-like man who is going to make an important decision for me. But he wasn't a bully. I had met with the bullies before." Reached Friday by phone, Judge Goldberg said: "I remember the case well because Ms. Singleton-Clarke was so articulate and well-prepared. Too many taxpayers are not." Ms. Singleton-Clarke's victory came when the ruling was issued a year later. It is unusual in that it helps not only her but others as well. Decisions in small cases aren't allowed to be cited as precedent. "But everyone uses them," says Melissa Labant, a tax expert with the American Institute of CPAs. "This case definitely provides a road map others can use, especially M.B.A. students."
Certainly, she won the battle (Win against IRS in court) However she lost the war (MBA is from University of Phoenix. Heh. Heh. Heh.)
It's always nice to fight the system and win. I've been in several long-running battles with some city government departments, and it's been soooooo gratifying getting victories in arbitration court. I can't imagine going toe-to-toe with the IRS. Those people can mess you up for crossing them. Good show, Ms. Singleton-Clarke.
Disagree with you. She won because she had the facts on her side and she was meticulous and prepared. Most tax cheats would still have their cases decided in favor of the IRS.
This ruling seems huge. I mean if you can deduct tuition expense from gross earned wages, some working folks who attend school simultaneously might be able to take some huge deductions. What is stop someone from deducting other professional school fees or even undergraduate fees?
as a current MBA student I plan to research this tax court ruling heavily in the coming weeks in hopes of taking an extremely large deduction for my 2009 tuition for my MBA. I think the precedent set here (a nurse able to take an MBA deduction) is enormous... one of the rules of this deduction states something along the lines of that "you can't take the deduction if the MBA helps you change your trade or business" - which obviously a nurse can do by getting an MBA - yet she was able to argue around this AND WIN!
My tax professor (one of the best in the country) told my whole class that he would give them free legal advice if one of us deducted our law tuition and challenged this very provision because it was unsupported that the IRS could deny a deduction for a professional school (undergrad tuition still won't be deductible). (I believe this is the same thing he was talking about, but I forget the details) He told us that one of us could have our name in a tax case history if we had the guts to challenge the IRS; a case that would be read by law students for decades. I believe a couple of students planned to deduct and take him up on the offer, but this lady's deduction happened in 2005. I think I read the article here saying that everyone who've deducted this, ended up settling rather than take on the IRS in court. This will affect all professional schools. Pretty big deal in tax law, but it was something that tax professors have been asking for someone to do for quite some time.
pimphand: did your professor acknowledge that law school is an undergrad program there may still be a future for you in the records books if you challenge this for a non-grad professional program (accounting, engineering, law etc). Who knows.... Or perhaps the IRS will change the rules.
I think he meant it as in, if she wanted to do something more prestigious like Ibanking or Management Consulting, she would have a difficult time getting her foot in the door with an MBA from Phoenix (not impossible, but infinitely harder, than say an MBA from Wharton). Anyways, good for her. I don't get this quote though..."That was why she studied for her M.B.A., she says: "I didn't want to feel outmatched by surgeons who didn't want to talk to me." What the hell is she talking about? How does an MBA make her feel less outmatched by surgeons? It's not like they are talking about accounting or financial analysis in the hospital room. If anything, she should have gone to medical school and became a surgeon, thereby equaling the playing field between her and other surgeons...makes no sense to me.
If I remember correctly (my memory of all this is far from perfect) but the rule involved here, specifically mentions professional schools only. And I think it is only towards certain types of grad degrees I believe. Masters in Theology won't cut it. Undergrads definitely not allowed.
I suspect that's the gist of her case. That the MBA improved skills for her current work rather then simply being something to qualify her for a new trade or business. The skillset taught for an MBA is (theoritically ) pretty broad -- so that's why this might be fairly far reaching.
I guess so but knowing the curriculum of an MBA program, that is one FAR stretch...if this was the reasoning behind it, it is flawed in so many ways... I don't even see how an MBA would help her become a better nurse, outside of possibly becoming an admin. of some type in the actual nursing unit...pretty far reaching I think...
I wouldn't be surprised if someone handed her a legal journal and she just laid out the points. But perhaps she did this all by herself, which would be quite impressive but I lean towards doubt. the article doesn't talk about what her legal position was or how she figured it out, which unfortunately is the case with most articles involving legal decisions. I think if articles would discuss some case background, it would de-mystify the law and make the law more accessible to the public ---> democracy & lower attorney fees ---> lower attorney fees But she may have done it all herself. Some people are quite remarkable. I worked for a federal judge for a little while, and the best advocate I've seen before the judge was a poor black man who couldn't write or spell. He had all sorts of things documented even though much of it was irrelevant, but some of the shreds really hit good points. He didn't know the law at all, but with those who self-represent, judges often help to make their case for them. This was a ruling that was due.
Sorry for the typo. Perhaps lower attorney fees struck a nerve with me and I freaked out. But just to add. If they talked a LITTLE about the legal position, then so many Clutchfans around the country, could take part in this deduction. But the Wall Street Journal is in the pocket of the IRS!
LMAO at the IRS. Damn scumbags. You think people are cheating the system? They are the one that are cheating the people. They aren't putting our hard earn dollars to good use. Actually they are. They are using it on themselves.
