The deductibility of graduate education expenses: without specific legislative or regulatory guidance it's up to the courts.
The deductibility of education expenses continues to be an area in the income tax law that results in a great deal of confusion and uncertainty. The principal reason for this tumultuous state of affairs is the lack of specific legislative or regulatory guidance for taxpayers. The regulations that serve as the authority for deducting educational expenditures are extremely general and nonspecific in nature and have led to the courts having to interpret the tax consequences of specific circumstances. As a result, there are literally hundreds of cases, spread across a broad range of factual situations, that taxpayers must traverse to determine whether or not their education expenses are deductible.
This article will examine the key factors that taxpayers must consider in deducting graduate education expenses. The focus is on graduate education expenses because the majority of problems are encountered there, and the law is surprisingly clear in undergraduate education and continuing professional education. Undergraduate education expenses are generally nondeductible unless the college course is an isolated course that is not part of a program of study leading to a degree. Continuing professional education, on the other hand, is deductible, assuming it is sufficiently related to the taxpayer's current job.
While there are a number of factors that must be considered in determining the deductibility of graduate education expenses, two factors stand out: First, the taxpayer must actually be in a trade or business at the time the education is incurred. A taxpayer who is either a full-time student or not actively engaged in a trade or business at the time the education is undertaken may have a difficult time supporting the deduction. Second, if the education qualifies the taxpayer for a new trade or business, the expenses connected with such education are not deductible.
The deductibility of education expenses is not specifically provided for in the Code. The regulations under Sec. 162 provide the authoritative rules. The placement of the rules under Sec. 162 clearly establishes that the deductibility of education expenses rests on the association of such expenses with the taxpayer's trade or business. While many expenses for education are considered personal in nature and, therefore, nondeductible, Regs. Sec. 1.162-5 provides that education expenses must be connected with a trade or business and then tested against four criteria to determine whether they can be deducted. The expenditures must first be tested against two negative criteria and, assuming that neither disallows the expenditures, they must then meet one of the two positive criteria.
* Negative criteria: The regulations provide that if either of the two negative criteria is present, such expenses will not be allowable. 1. Education expenses that are required of the taxpayer in order to meet the minimum educational requirements for qualification in his employment or other trade or business,(1) or 2. Education expenses that are part of a program of study which will qualify the taxpayer for a new trade or business.(2)
The terms "qualification" or "qualify" are of critical importance. A common thread of many cases decided for the IRS is that the education obtained qualified the taxpayer for a new trade or business even though the taxpayer had no intention of actually entering the hypothetical trade or business. Qualification alone was sufficient. * Positive criteria: The regulations provide that if either of the two positive criteria is present and neither of the two negative criteria applies, an education expenditure is deductible. 1. Education expenses maintain or improve skills required by the individual in his employment or other trade or business,(3) or 2. Education expenses meet the express requirements of the individual's employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status or rate of compensation.(4)
Under both criteria, the expenses must be in connection with the taxpayer's employment or trade or business. Thus, a taxpayer must demonstrate that the education has a proximate relationship to skills required in his current job or trade or business. Second, the taxpayer must be in a trade or business at the time the courses are taken. Many taxpayers have had education expenses disallowed because they were not considered to be in a trade or business at the time the expenses were incurred.
Clearly, all of these factors have resulted in controversies between taxpayers and the IRS. However, the two factors causing the preponderance of litigation are (1) the presence of a trade or business at the time the expense is incurred and (2) whether the education qualifies the taxpayer for a new trade or business.
Engaged in a Trade or Business
In order to deduct education expenses, a taxpayer must be engaged in the "carrying on" of a trade or business. This "carrying on" can be in connection with either his capacity as an employee or as a self-employed individual in a trade or business. A parttime student who is employed on a full-time basis or has his own trade or business would certainly meet this test. Full-time students, however, face more difficulties, especially those who are not currently employed. The IRS stated its original position in Rev. Rul. 60-97.(5)
A taxpayer who is not currently employed or is not otherwise actively engaged in a trade or business is not entitled to a deduction for the expenses of any education undertaken during such period of unemployment or inactivity .... A taxpayer will not be considered to have ceased to engage in his employment or other business during an off-duty season, when he is on vacation, or when he is on temporary leave of absence.
Thus, in essence, a full-time student was virtually prohibited from deducting education expenses unless he was on a temporary leave of absence. This position was softened somewhat in Rev. Rul. 68-591,(6) which provided that education expenses will be deductible if the taxpayer only "temporarily ceases to engage actively in employment or other trade or business." (Emphasis added.) The ruling defined temporary as a suspension period of one year or less. This change of position allowed a taxpayer who resigned permanently from his present job, rather than merely taking a leave of absence, to deduct his education expenses. Rev. Rul. 68-591 was prompted by the Seventh Circuit's decision in Furner,(7) which involved a teacher who resigned her teaching position to pursue graduate education for one academic year and, on graduation, accepted a teaching position at a different school. The original school's policy was not to grant leaves of absence. The Tax Court agreed with the IRS that Furner was not engaged in "carrying on" a trade or business at the time the education was being undertaken, and disallowed the deduction. The Seventh Circuit, however, determined that requiring a formal leave of absence was too restrictive and reversed the Tax Court's decision. The IRS agreed with this decision and imposed the one-year-or-less time period. Rev. Ruls. 60-97 and 68-591 still represent the IRS's position.
The job-related and trade or business requirements for full-time students generally arise in two different contexts: (1) whether the taxpayer's education period is merely i temporary hiatus from his previous job to a new job (in the same field), or (2) whether the taxpayer was in a trade or business before undertaking the graduate education.
* Temporary hiatus
A taxpayer who leaves his job, undertakes graduate education and then resumes employment in a similar job would be allowed a deduction for the education expenses if the education period is temporary. This, of course, presumes that the educational expense is otherwise deductible, i.e., maintains or improves his skills and does not qualify him for a new trade or business.
The Tax Court has consistently rejected the absolute one-year time period. For example, in Picknally, the Tax Court stated that "[t]emporary suspension is defined there [Rev. Rul. 68-591] as being for a period of one year or less, but the courts do not recognize such an absolute time limitation."(8) In Sherman, the Tax Court held that "[t]here is no magic in a one year limit on |temporry' (other than possible ease of administration), and we believe a facts and circumstances test is the appropriate test for determining whether a hiatus is temporary rather than indefinite." (Footnote omitted.)(9) Thus, while the IRS may want to impose a strict one-year limit, the courts have been more reasonable.
The Sherman case represents an important precedent for any taxpayer who takes a temporary hiatus from a job to undertake additional education and wants to claim a deduction for the education expenses. Sherman was discharged from the Army in 1968 but secured employment for two years with the Army and Air Force Exchange Service (AAFES), with significant managerial responsibilities relating to military operations in Viet Nam. He applied and was accepted into the MBA program at Harvard in 1971. When the AAFES denied his request for a leave of absence, he resigned and attended Harvard, completing his degree in 1973. Sherman reapplied for employment with the AAFES, but because of an overall decrease in management personnel, he was not rehired. He then accepted a corporate position as director of planning and research. On his 1971 return, Sherman deducted his MBA expenses, which the IRS disallowed.
The central issue was whether Sherman was "carrying on" a trade or business at the time he incurred the education expenses. The IRS argued that the taxpayer's suspension from his established trade or business was not temporary and definite pursuant to Rev. Rul. 68-591. The Tax Court dismissed this argument by stating that the one-year period is nothing more than the opinion of one of the litigants in the case and a facts and circumstances test is more appropriate. Further, the two-year MBA program was certainly definite in length.
The importance of the Sherman decision, and the line of cases that follow it, is that a taxpayer can leave his job (i.e., be unemployed) to undertake graduate education, and still be allowed a deduction for the expense as being related to his trade or business. Taxpayers should be cautioned, however, that the IRS has expressly stated that the Sherman case does not reflect its position.(10) In addition, several decisions have been decided for the Government in which the links connecting past employment, education undertaken and future employment are not related or definite in time and intent.(11) However, if there is substantial continuity between a taxpayer's past employment and the seeking of new employment, the deduction should be sustained. Sherman was allowed the deduction because (1) he had established himself in the trade or business of management before he went to Harvard, (2) his study at Harvard was for a temporary and definite period and (3) he stayed in the same field on graduation.(12)
* Not established in a trade or business
An additional prerequisite for a graduate education expense deduction is that the taxpayer be established in a trade or business at the time the education is undertaken. An essential question, therefore, is how long must the taxpayer be employed in order to establish that he is engaged in a trade or business? The answer to this question is certainly mixed based on several Tax Court decisions.
In Link,(13) the taxpayer graduated from Cornell University in May 1981 and began full-time employment as a market researcher in June 1981. Before graduating from Cornell, Link was accepted into the MBA prograro at the University of Chicago and notified the school of his intention to enroll. In September 1981, Link left his job and enrolled at Chicago. While there, Link held a couple of part-time jobs in the market research field but not with his first employer. After completing his degree, he was employed by yet another company as a research analyst. He deducted $3,629 as education expenses in 1983.
The Tax Court held that Link was not established in a trade or business before enrolling in the MBA program and disallowed the deduction. The court reasoned that (1) full-time employment of three months was not sufficient to establish a trade or business. it was "merely a temporary hiatus in a continuing series of academic endeavors" and (2) Link had already been accepted to graduate school and his behavior exemplified that of a student more than an employee.
In contrast, the taxpayer in Ruehmann(l4) was allowed to deduct expenses in connection with earning his LL.M. degree even though he worked full-time as an attorney for only three months. Before he graduated from the University of Georgia Law School, Ruehmann successfully completed the bar exam and, after graduation, worked during the summer as a licensed attorney. Ruehmann then attended Harvard Law School full-time to earn his LL.M. degree. The Tax Court in Link distinguished the holding in Ruehmann on the grounds of factual differences. The distinction is certainly not readily evident. A possible explanation is that Ruehmann had earned his professional certification by passing the bar exam, whereas Link had no professional certification. However, there was no required certification in Link's field.
To further muddy the waters, in Reisine,(15) the Tax Court disallowed the expenses of an engineer who had been employed for one year and went back to school to earn a Master's degree. (Reisine was working on his Ph.D. at the time the case went to court.) Even though Reisine had been employed for a year, the Tax Court held that he had not sufficiently established himself in a trade or business. A major factor was that his program of study was for an indefinite period of time. While not stated in the case, one can only hypothesize that the result might have been different if Reisine had only obtained a Master's degree and gone back to work in a similar field.
Based on these cases, generalizations regarding whether a taxpayer is established in a trade or business are difficult to make. Nevertheless, the following factors seem important: (1) a minimum of one year's employment, (2) the attainment of professional certification and (3) the existence of a definite period of time for graduate study. A time period for study in an educational program of less than a year is a stronger position than a period of more than a year.
Qualification for a New Trade or Business
The second major hurdle to overcome in order to deduct graduate education expenses is qualification for a new trade or business. Regs. Sec. 1. 162-5(b)(3) disallows an education expense if the education is "part of a program of study being pursued ... which will lead to qualifying [the taxpayer] in a new trade or business." A program of study is considered to be an integrated program of study that generally leads to either a formal degree or certificate, or would provide the person with a skill that would be considered to be a new trade or business. It certainly would not apply to an isolated course that is not part of a program leading to a degree. However, if the courses taken as a whole constitute a "program of study," even though taken months or years apart, the expenses connected with these courses would not be deductible.
A major distinction must be made between qualification and intent. Even if a taxpayer has no intention of changing jobs or careers, if the education qualifies him for a new trade or business, the regulations disallow a deduction for such education expenses. One can plainly see the problems inherent in this test-the IRS can assert that virtually any program of study will "qualify" a taxpayer for a new trade or business, irrespective of the intention of the taxpayer. Unfortunately for many taxpayers, this is exactly what has occurred.
* The regulations
The regulations provide little guidance as to what constitutes qualifying for a new trade or business. For taxpayers other than teachers, there is only one sentence, which reads, in part, "a change of duties does not constitute a new trade or business if the new duties involve the same general type of work as is involved in the individual's present employment." (Emphasis added.) The courts have been strapped with the responsibility of applying these regulations to specific factual cases. Application to teachers: The regulations are quite generous to teachers. They provide that "all teaching and related duties shall be considered to involve the same general type of work" and give the following examples that do not constitute a new trade or business.
* Elementary to secondary classroom teacher.
* Classroom teacher in one subject to classroom teacher in another subject.
* Classroom teacher to guidance counselor.
* Classroom teacher to principal.
Interestingly, in Toner,(16) the IRS disallowed the education expenses of a parochial school teacher who was hired after completing only two years of college but was required to complete her degree within a specified period of time. The Tax Court agreed with the IRS (in a reviewed decision by a vote of 8 to 7) on the grounds that the taxpayer could now teach in a public school and thus qualified for a new trade or business. The Third Circuit reversed the decision by stating: "We fail to see how changing from a parochial school elementary teacher to a public school elementary teacher involves any greater qualitative change in the duties associated with the two positions than does the example."(17) The "example" refers to the one in the regulations on the change from a classroom teacher to a guidance counselor. However, one can sympathize with the majority side of the Tax Court in that most students preparing for a career in elementary teaching cannot deduct their education expenses.
Application to other taxpayers: For taxpayers other than teachers, the regulations are incredibly sparse. As mentioned previously, there is the one sentence regarding the "same general type of work" requirement and four examples illustrating two law school situations (deductions disallowed), a continuing professional education course for a doctor (deduction allowed) and education relating to a specialty within a current trade or business (deduction allowed). This lack of guidance has placed the responsibility squarely on the courts, which have been unable to establish a consistent and uniform precedent for the deductibility of education expenses.
* The courts' interpretation
The courts have had difficulty applying the regulations, and have clearly struggled with the problem of deciding whether an educational expenditure "qualifies" the taxpayer for a new trade or business.
The courts have made it abundantly clear that law school expenses are not deductible under the theory that graduation from law school will qualify one for a new trade or business. In fact, not one case has been decided in the taxpayer's favor, even when the taxpayer had no apparent intent to leave his present job and practice law. In Melnik,(18) the taxpayer was an IRS agent who went to law school to improve his skills as an IRS employee. The deductions were disallowed and the courts agreed that the attainment of a law school degree would qualify Melnik for a new trade or business.
A similar result occurred in O'Donnell,(19) in which the taxpayer, a CPA, worked in the tax department of a national accounting firm. In order to improve his accounting and tax skills, O'Donnell went to law school at night. At no time did O'Donnell intend to practice law; he went to law school solely to enhance his progress within the firm. The Tax Court ruled that his intent is irrelevant and stated that it is "abundantly clear that petitioner, by attending law school, has qualified himself for a new trade or business and his expenses are nondeductible."(20)
To demonstrate how narrowly this concept has been applied, in Sharon,(21) the taxpayer was an attorney in private practice in New York and accepted a position as an attorney with the IRS Office of Regional Counsel in California. Sharon determined that the study of California law would be helpful in his practice as an attorney for the IRS, although it was not required by the Service. He took a bar review course to assist him in being admitted to the California bar. The Tax Court, in agreeing with the IRS, found that the bar review course would help qualify Sharon for a new trade or business. The court compared the tasks and activities that he was able to perform before and after receiving his license and concluded that he had qualified for a new trade or business. This decision took one aspect of the taxpayer's job - the ability to appear in court in California - as the deciding factor, notwithstanding the fact that the vast amount of an attorney's duties are performed in the office, not in the courtroom.
Other cases serve to demonstrate that the intent of the taxpayer is irrelevant. A glaring example is found in Roussel,(22) in which the taxpayer, a ground safety school instructor for pilots, was threatened with dismissal because of his inability to teach his subject from a pilot's point of view. Roussel began taking flying lessons and the negative criticism about his teaching ceased. He received a commercial pilot's license but was prohibited from flying for hire with passengers either at night or on cross-country flights of more than 50 miles. The Tax Court, apologetically, held that the commercial pilot's license qualified him for a new trade or business even though the situations in which he could earn a livelihood were strictly limited. The court stated: "Yet he could take passengers for short joy rides on sunny days and be compensated for that function, which he was not allowed to do prior to his qualification as a commercial pilot."(23) This decision resoundingly demonstrates how narrowly the regulations can be interpreted with the effect of allowing the IRS a virtual free hand in this area.
With the abundance of cases that disallow education expenses under the regulations, there is one area in which taxpayers have been relatively successful. Taxpayers in managerial positions who have earned an MBA (or MBA-type) degree have been allowed to deduct their education expenses. In Beatty,(24) the taxpayer was an engineer whose duties had progressed to managing more than 100 other engineers. He earned a Master of Science in Administration to enhance his technical management skills. The Tax Court agreed with the taxpayer that this education did not qualify him for a new trade or business, noting that the course of study involved a broad, general overview of management: "There were no specialized programs which would qualify a graduate, as a matter of technical training or as a prerequisite to professional certification, for any particular trade, profession or business."(25) While the court held for the taxpayer, it is certainly possible for the IRS to argue that an MBA might qualify a taxpayer for any number of new jobs, e.g., investment banking on Wall Street, even though such jobs are highly competitive. Education expenses connected with an MBA degree are by no means an automatic deduction. In Menas,(26) the taxpayer was an IRS agent and a CPA, whose primary duties included the examination of individual, corporate and trust tax returns. His MBA program, which was not required by the IRS, included courses in economics, statistics, business policy, managerial accounting and management. The Tax Court was unable to establish that Menas's course of study would improve his skills as a revenue agent and the expenditures were held to be nondeductible personal expenses.
If the Service's intent is to disallow an education expenditure on the grounds that such education "qualifies" the taxpayer for a new trade or business, a taxpayer may certainly have a difficult time in refuting such a position. The regulations are generally supportive of the IRS position, especially if the Service identifies specific trades or businesses for which the taxpayer may qualify by virtue of the education. However, taxpayers may advance several arguments in either an administrative hearing or a court of law.
* The education clearly maintains and improves skills in their specific job or trade or business. It is common practice for persons in similar positions to undertake such education.
* The IRS should be reasonable in its interpretation of "qualifying" for a new trade or business or else no education expense would be deductible. Unreasonable IRS positions weaken its subsequent positions.
* Several courts have advocated a "common-sense approach" to this problem. The taxpayer's position certainly shows common sense.
* The education expense was taken primarily to improve skills. The IRS's position that the education qualifies the taxpayer for a new trade or business is unreasonable. (Overall, since taxpayers are not in a position of strength in this area, they must work hard to emphasize this point.)
How to Deduct Education Expenses
Assuming an education expense is ultimately determined to be deductible, the employee should deduct the expense on Schedule A as a miscellaneous itemized deduction, subject to the 2% floor. If a taxpayer is self-employed, the expense should be deducted directly on Schedule C. If a taxpayer's expenses are reimbursed by his employer, such expenses may be includible in or excludible from gross income (as discussed below).
* Education expenses paid by employer
Many employers encourage their employees to obtain additional education by reimbursing them for the costs of such education. There are three basic possibilities that exist for the classification of employer-paid education expenses.(27)
1. Inclusion of amounts in an employee's W-2. The employee deducts or does not deduct, the education expenses on his individual return based on Regs. Sec. 1. 162-5 and the case law on it.
2. Exclusion of amounts from the employee's income if the payments qualify as working condition fringe benefits under Sec. 132.
3. Exclusion of amounts from the employee's income if the payments qualify as a scholarship under Sec. 117.
Inclusion in W-2: In general, employer-paid education expenses are a taxable transaction and should be included in the employee's W-2. This rule falls under the general rule of Sec. 61 that gross income includes compensation for services. Thus, assuming the amount is included in the employee's income, the subsequent deductibility of the education expenses by the employee is determined under Regs. Sec. 1. 162-5. There are, however, several exceptions that may allow an employee to exclude the employer payments from gross income (discussed below).
Working condition fringe benefit: Employees may exclude education payments made by their employers if such payments constitute a working condition fringe benefit as defined in Sec. 132 and its regulations. A working condition fringe is a payment by the employer that would have been deductible under Sec. 162 or 167 if the payment had been made by the employee and the expense would have been deductible by the employee in connection with his trade or business of being an employee of the employer.(28) Thus, if an employer pays the education expenses of an employee that meet the requirements of Regs. Sec. 1. 162-5, such amounts are excludible from the employee's gross income. Three rulings were issued by the IRS in 1976 that still serve to clarify the operation of Sec. 132. When employees were required to take education courses that maintained and improved skills in their job but did not qualify them for a new trade or business, Rev. Rul. 76-6529 provided that employer tuition payments were excludible. However, employees who attended an accredited law school(30) or could take courses regardless of whether the courses were job-related or not(31) were not allowed to exclude such payments. These rulings are certainly consistent with both Sec. 132 and Regs. Sec. 1. 162-5.
Employer payments may also be excludible if made pursuant to an accountable plan as defined in Regs. Sec. 1.162-17. However, the education payments must still meet the requirements of Regs. Sec. 1. 162-5 in addition to the employee making an adequate accounting to his employer.
Tax-free scholarships: Education payments to an employee may be excluded if the payments constitute a scholarship under Sec. 117. Such payments must be for tuition and course-related expenses and must not represent compensation for past, present or future services, or be primarily for the benefit of the employer.(32)
There are two principal considerations in deducting graduate education expenses: (1) being in a trade or business at the time the education is undertaken, and (2) avoiding having the education qualify the taxpayer for a new trade or business. While each situation must be evaluated on the particular facts and circumstances, several trends can be identified.
* The expense of taking virtually any college undergraduate course that could lead to a degree will be disallowed; however, an isolated course that is not part of a program of study is allowable.
* Expenses of attending law school are disallowed; however the costs of obtaining an LL.M. degree are generally allowable.(33)
* Expenses incurred in developing a specialty within an existing trade or business are allowable.
* Graduate education expenses that lead specifically to a new trade or business, such as medical school, dental school, pharmacy school, etc., are disallowed.
* Graduate education that is more general in nature, such as an MBA degree, is generally allowable.
* Continuing education expenses are generally deductible; however, expenses connected with professional certification courses (such as CPA or bar review courses) are generally disallowed.
* Other graduate education expense deductions depend on the facts and circumstances of the specific cases.
The deductibility of graduate education expenses, in many instances, is extremely difficult to determine with any degree of certainty. With little guidance available, practitioners are left to maneuver through this trap-laden area of the tax law.
(1) Regs. Sec. 1.162-5(b)(2). (2) Regs. Sec. 1.162-5(b)(3). (3) Regs. Sec. 1.162-5(a)(1). (4) Regs. Sec. 1.162-5(a)(2). (5) Rev. Rul. 60-97, 1960-1 CB 69. (6) Rev. Rul. 68-591, 1968-2 CB 73. (7) Mary 0. Furner, 393 F2d 292 (7th Cir. 1968)(21 AFTR2D 794, 68-1 USTC [paragraph] 9234), rev'g 47 TC 165 (1966). (8) Robert John Picknally, TC Memo 1977-321, at 77-1292. (9) Stephen G. Sherman, TC Memo 1977-301, at 77-1191. (10) See IRS Letter Rulings 8538068 (6/26/85) and 8714064 (1/8/87). (11) See, e.g., Mathew J. Reisinger, 71 TC 568 (1979). (12) See, however, Joseph Sorin Schneider, TC Memo 1983-753. (13) Ross Lawrence Link, 90 TC 460 (1988). (14) Albert C. Ruehmann III, TC Memo 1971-157. (15) Barry Reisine, TC Memo 1970-310. (16) Linda M. Liberi Toner, 623 F2d 315 (3d Cir. 1980)(46 AFTR2D 80-5156, 80-2 USTC [paragraph] 9507), rev'g 71 TC 772 (1979). (17) Id., 3d Cir., at 80-2 USTC 84,626. (18) John Melnik, 521 F2d 1065 (9th Cir. 1975)(36 AFTR2D 75-5667, 75-2 USTC [paragraph] 9702), cert. denied, aff'g per curiam C.D. Cal., 1973 (32 AFTR2D 73-5230, 73-2 USTC [paragraph] 9521). (19) Patrick L. O'Donnell, 62 TC 781 (1974), aff'd in an unpublished opinion, 7th Cir., 1975. (20) Id., TC, at 783. (21) Joel A. Sharon, 591 F2d 1273 (9th Cir. 1978)(43 AFTR2D 79-335, 78-2 USTC [paragraph] 9834), cert. denied, aff'g per curiam 66 TC 515 (1976). (22) Yvan Roussel, TC Memo 1979-125. (23) Id., at 79-535. (24) Robert C. Beatty, TC Memo 1980-196, at 80-898. See also Frank S. Blair III, TC Memo 1980-488. (25) Beatty, id., at 80-898. (26) John J. Menas, TC Memo 1969-114. (27) Until June 30, 1992, a fourth possibility existed. Sec. 127 permitted employers to reimburse employees for education expenses under an Educational Assistance Program to a maximum of $5,250 per year. Under such a program, the employee could exclude the reimbursement from income and the employer could deduct such amount. However, Sec. 127 expired on June 30, 1992, and while Congress attempted to extend this provision in the latter part of 1992, no final action has been taken. Thus, no exclusion from income is available for educational assistance payments made to or on behalf of employees after June 30, 1992. (28) Regs. Sec. 1,132-5(a). (29) Rev. Rul. 76-65, 1976-1 CB 46. (30) Rev. Rul. 76-62, 1976-1 CB 12. (31) Rev. Rul. 76-352, 1976-2 CB 37, distinguishing Rev. Ruls. 76-65 and 76-62. (32) Regs. Sec. 1.117-4(c). (33) See Letter Ruling 9112003 (12/18/90), in which the Service ruled that the cost of acquiring an LL.M. degree is deductible provided the candidate practices law before and after getting his degree.
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|Author:||Pope, Thomas R.|
|Publication:||The Tax Adviser|
|Date:||Mar 1, 1993|
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