## Facts

- Alex and Elizabeth Kopaigora filed a 2011 joint federal income tax return claiming a deduction for Alex Kopaigora’s Executive MBA (EMBA) expenses as unreimbursed employee business expenses.
- Before and when he enrolled in the EMBA program (July 2010), Alex Kopaigora worked in corporate finance and accounting management for Marriott, serving as senior assistant controller at a hotel.
- His work involved budgeting and financial reporting, audits and tax accounting, internal controls and GAAP compliance, and managing and training employees.
- The EMBA curriculum covered management, leadership, finance, accounting, operations, strategy, and related subjects.
- Marriott terminated his employment in April 2011; he continued the EMBA while seeking work in the same finance/accounting field.
- He completed the EMBA in August 2012 and was hired in September 2012 as vice president of finance at another company.
- The IRS issued a notice of deficiency determining a $2,111 deficiency for 2011 after disallowing the education-expense deduction; other items were resolved, leaving only the education-expense issue for trial.
- The case was tried under the small tax case procedure in the U.S. Tax Court.

## Issues

1. Whether EMBA-related costs were deductible under I.R.C. § 162 and Treas. Reg. § 1.162-5 as education that maintained or improved skills in the taxpayer’s existing trade or business.
2. Whether the EMBA was nondeductible because it was part of a program qualifying the taxpayer for a new trade or business.
3. Whether a period of temporary unemployment during which education expenses were incurred severed the required connection to the taxpayer’s trade or business for § 162 purposes.

## Decision

- The Tax Court allowed the deduction for the EMBA expenses as unreimbursed employee business expenses under § 162.
- The court found the EMBA maintained or improved skills used in the taxpayer’s established trade or business of corporate finance and accounting management.
- The court found the EMBA did not qualify the taxpayer for a new trade or business.
- The court held the taxpayer’s temporary unemployment did not interrupt his trade or business because he continued seeking work in the same field and later returned to it.
- The IRS deficiency was reduced to reflect allowance of the education-expense deduction.

## Legal Principles

- Education expenses are deductible under § 162 when they maintain or improve skills required in the taxpayer’s existing employment or other trade or business. Treas. Reg. § 1.162-5(a).
- Education expenses are not deductible if they are part of a program leading to qualification in a new trade or business. Treas. Reg. § 1.162-5(b)(3).
- Education expenses are not deductible if the education is required to meet the minimum educational requirements for qualification in the taxpayer’s trade or business. Treas. Reg. § 1.162-5(b)(2).
- Temporary unemployment does not necessarily end a taxpayer’s trade or business for § 162 purposes when the taxpayer remains oriented toward, and seeks to continue in, the same line of work.

## Conclusion

The Tax Court held that an experienced finance and accounting manager could deduct EMBA expenses under § 162 because the program improved skills used in his existing trade or business, did not qualify him for a new trade or business, and remained sufficiently connected to his work despite a temporary period of unemployment.


Kopaigora v. Comm’r, T.C. Summ. Op. 2016-35 (2016)