## Facts

- The IRS addressed the deductibility of education expenses under I.R.C. § 162 and Treas. Reg. § 1.162-5 when a taxpayer temporarily stops active work to pursue full-time education.
- The ruling responded to an appellate decision allowing a teacher to deduct one academic year of full-time graduate study expenses even though she left her job and later took a different teaching position.
- The ruling focused on situations where a taxpayer undertakes education or training to maintain or improve skills required in an existing employment or trade or business.
- The ruling treated a temporary suspension from active work—ordinarily a year or less—as potentially consistent with continuing to “carry on” a trade or business if the taxpayer later resumes the same employment or trade or business.
- The IRS distinguished temporary interruptions from cases where the taxpayer is not actually carrying on a trade or business and relies only on a general intention to return.

## Issues

1. When a taxpayer leaves active employment for full-time education, under what conditions are the education expenses deductible as ordinary and necessary business expenses under I.R.C. § 162 and Treas. Reg. § 1.162-5?
2. How does a temporary cessation of work affect whether the taxpayer is “carrying on” a trade or business for § 162 purposes?
3. Is subjective intent to resume a trade or business at an indefinite future date sufficient to treat education expenses as incurred “in carrying on” that trade or business?

## Decision

- The IRS stated it would follow the referenced appellate decision only in cases meeting § 162 and Treas. Reg. § 1.162-5 and having substantially similar facts.
- The IRS recognized that a taxpayer may still be considered to be carrying on a trade or business during a temporary cessation of active work undertaken to maintain or improve job skills.
- The IRS indicated that, ordinarily, a suspension of a year or less followed by resumption of the same employment or trade or business will be considered temporary.
- The IRS rejected any interpretation that would allow a deduction when no trade or business is in fact being carried on, based merely on (i) education being a “normal incident” of the trade or business and (ii) the taxpayer’s subjective intent to resume at an indefinite future date.

## Legal Principles

- Education expenses may be deductible under I.R.C. § 162 and Treas. Reg. § 1.162-5 if the education maintains or improves skills required in the taxpayer’s existing employment or trade or business and the § 162 “carrying on” requirement is satisfied.
- A temporary interruption of active work for education does not, by itself, end the taxpayer’s trade or business for § 162 purposes; temporary suspensions are evaluated based on objective continuity.
- As an administrative benchmark, a break of about one year or less followed by resumption of the same employment or trade or business is ordinarily treated as temporary.
- A deduction is not allowed where the taxpayer is not actually carrying on a trade or business at the time the expenses are incurred, even if the taxpayer intends to return to the field later.

## Conclusion

The ruling adopted a limited acceptance of deductions for skill-maintenance education taken during a short, objectively continuous break from active work, while denying deductions grounded only in the taxpayer’s indefinite future intent to resume a trade or business.


Rev. Rul. 68-591, 1968-2 C.B. 73 (1968)