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Sunday, November 18, 2018

LL.M. Degree Not Deductible

A taxpayer went to law school in Spain and practiced law there for several years as an international attorney. He then moved to New York City and enrolled in an LL.M. program at NYU. He paid tuition expenses of $27,435. After obtaining his degree, he obtained a visiting attorney position in the U.S. at an international law firm, doing similar work to what he did in Spain. He then  took and passed the New York State bar exam - he was eligible because of his LL.M. degree. He passed and was admitted to practice in New York and continued working at the law firm.

The issue is whether he could deduct his tuition expenses. Code §162(a) allows a deduction for education expenses if (1) made by a taxpayer to maintain or improve skills required in the taxpayer's business or employment, or (2) to meet the express requirements of the taxpayer's employer, or the requirements of law or regulations, imposed as a condition to retaining his or her salary, status or employment. See also Treas. Regs. §1.162-5. However, no deductions are allowed if the education is part of a program of study that will lead to qualifying the individual in a new trade or business, or are needed to meet the minimum education requirements for qualification in the taxpayer’s employment. Treas. Regs.§ 1.162-5(b)(3)(i).

The Tax Court ruled that the deductions were nondeductible. While the taxpayer did perform similar job functions before and after the LL.M., and the LL.M. related to those functions, that the LL.M. allowed him to seek admission to the New York Bar sunk his boat by leading to qualifying him in a new trade or business. Also relevant was that he did not need the degree for his visiting attorney job.

Note that under the 2017 Tax Act, unreimbursed education expenses of employees are miscellaneous itemized deductions that are presently suspended through 2025.

Enrique Fernando Dancausa Valle, TC Summary Opinion 2018-51

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