Law librarian's costs in obtaining law degree were not deductible.

G has been an academic and court law librarian for 25 years. She has held a variety of law librarian positions as a state court employee for 15 years and is currently a law library manager. G's primary duties consist of legal research, overall management and administration of the law library, and support on an ongoing basis to attorneys, judges and other individuals using her county's law library.

G attended law school from August 1994 through December 1998 and received her law degree. While she attended law school, G worked full-time for her state law library. She was admitted to the bar in Minnesota on May 7, 1999. Although the courses taken to obtain her law degree improved or maintained her skills in her position as a law librarian, G's employer did not require her to obtain a law degree or attend law school; the job description for G's position as law library manager only indicated that a "[law degree] or at least two years of professional experience in a law library is strongly preferred."

During 1996 and 1997, G claimed deductions of $13,313 and $14,998, respectively, for her legal educational expenses. G argued that she was permitted to deduct the expenses incurred while attending law school because the legal educational expenses improved and maintained her skills as a law librarian. The IRS contended that G was not entitled to deduct these expenses because the expenses led to her qualification for a new trade or business. In a memorandum decision, the Tax Court (opinion Pajak, J.) holds for the Service, ruling that G's expenses are not deductible.

Sec. 162 allows a deduction for ordinary and necessary expenses incurred in carrying on a trade or business. Kegs. Sec. 1.162-5 sets forth the guidelines for determining those educational expenses incident to a taxpayer's trade or business that are deductible. Educational expenses might be considered ordinary and necessary business expenses if the education maintains or improves skills required by the taxpayer in her employment or meets the express requirements of an employer imposed as a condition for the taxpayer's continued employment, status or rate of compensation.

Educational expenses, however, are not deductible if they are made by an individual for education that is part of a program of study being pursued that will lead to qualifying her in a new trade or business. Such educational expenses are not deductible, even though the education may maintain or improve skills required by the individual in her employment. Examples (1) and (2) of Kegs. Sec. 1.162-5(b)(3)(ii) illustrate this rule:

Example (1). A, a self-employed individual practicing a profession other than law, for example, engineering, accounting, etc., attends law school at night and after completing his law school studies receives a bachelor of laws degree. The expenditures made by A in attending law school are nondeductible because this course of study qualifies him for a new trade or business.

Example (2). Assume the same facts as in example (1) except that A has the status of an employee rather than a self-employed individual, and that his employer requires him to obtain a bachelor of laws degree. A intends to continue practicing his nonlegal profession as an employee of such employer. Nevertheless, the expenditures made by A in attending law school are not deductible since this course of study qualifies him for a new trade or business.

G contends that she obtained her law degree to maintain and improve her skills as a law librarian. She testified that knowledge of the law is both necessary and helpful in her duties as a law librarian. G also argues that she did not practice as an attorney and is, in fact, not allowed to practice law according to the tenets of her profession.

The regulations establish an objective standard for determining whether an educational expense is deductible. Law school expenses are nondeductible personal expenses, regardless of the taxpayer's primary motive in pursuing such studies and regardless of whether such education improves or helps maintain her skills in her business or profession, because the course of study qualifies the taxpayer for a new trade or business. The regulations do not predicate disallowance of the deduction on the actual practice of the new trade or business.

We do not dispute that G was an outstanding law librarian and that the legal education was helpful in her profession. However, by attending law school and obtaining her law degree, G became entitled to seek admission to the bar (as she did) and to enter the general practice of law if she should choose. G's pursuit of a law degree qualified her for the practice of law. Thus, G's law school education was part of a program that qualified her for a new trade or business.

STEPHEN GALLIGAN, TC MEMO 2002-150