Tax Court Reverses Course on Deduction for MBA Costs
Document Type Article
This paper was published as a Faculty Working Paper (no. 220) for the Lubin School of Business, Center for Applied Research, May 2006.
Obtaining an MBA degree is an expensive and time-consuming process. The cost is ameliorated, however, if a tax deduction can be taken. Although many in the business community believe they are entitled to deduct the costs of obtaining an MBA, the fact of the matter is that a deduction is not a certainty. There have been numerous litigated cases concerning whether a deduction for the cost of an MBA should be allowed. The cases reveal, however, that it all depends on the particular facts and circumstances. This paper reviews the case law concerning the deductibility of the costs of obtaining an MBA: first some older cases, then some more recent cases, and finally the most recent case decided in 2005. Based upon two cases decided by the Tax Court in 2002 and 2004, in which the taxpayers lost, tax practitioners were concerned that a tax deduction for the cost of an MBA was virtually foreclosed for everyone. But in the case decided in 2005, it appears that the Tax Court softened its position. Accordingly, it seems that there is still the possibility of deducting the cost of an MBA. But again, it’s not automatic and will depend on the facts.