## Facts

- The Internal Revenue Service addressed whether an employee may deduct expenses incurred to seek new employment.
- The relevant provisions included I.R.C. §§ 162 (trade or business expenses), 212(1) (expenses for production of income), and 262 (personal expenses), and Treas. Reg. § 1.212-1(f) (general nondeductibility of “seeking employment” expenses).
- The IRS had long taken the position that job-search expenses were deductible only if the employee actually secured new employment; unsuccessful search expenses were treated as nondeductible personal expenses.
- The Tax Court rejected that success-based distinction, treating an employee as engaged in the trade or business of performing services as an employee separate from any particular employer, and allowing deductions for job-search expenses in the same trade or business even if no job was obtained.
- The IRS reconsidered and revised its administrative position to conform to the Tax Court’s approach, while distinguishing job-search expenses from nondeductible expenditures to enter a new trade or business or to begin rendering services for the first time.

## Issues

1. Whether an employee’s ordinary and necessary expenses of seeking new employment in the same trade or business are deductible under I.R.C. § 162 even if the employee does not obtain the new job.
2. Whether the IRS may deny a deduction for unsuccessful job-search expenses based solely on the outcome of the search.
3. How deductible employee job-search expenses should be reconciled with Treas. Reg. § 1.212-1(f) and I.R.C. § 262’s bar on personal expenses.

## Decision

- The IRS concluded that ordinary and necessary job-search expenses incurred by an employee to obtain new employment in the same trade or business are deductible under I.R.C. § 162 regardless of whether the search results in employment.
- The IRS abandoned its prior distinction between successful and unsuccessful job searches.
- The IRS maintained that expenses incurred to enter a new trade or business, or to place oneself in a position to begin rendering services for compensation for the first time, remain nondeductible personal (or otherwise non-§ 162) expenses.

## Legal Principles

- An employee may be engaged in a trade or business of performing services as an employee, separate from employment by any particular employer.
- Under I.R.C. § 162, deductibility of job-search expenses depends on whether the expenses are ordinary and necessary and incurred in carrying on the taxpayer’s existing trade or business; it does not depend on whether the search succeeds.
- Treas. Reg. § 1.212-1(f) and I.R.C. § 262 preclude deductions for expenses that are personal in nature, including expenditures to enter a new trade or business or to begin rendering services for compensation for the first time.

## Conclusion

The IRS ruled that employees may deduct ordinary and necessary expenses incurred in searching for new employment in the same trade or business under § 162 even if they do not obtain a job, rejecting outcome-based disallowance while preserving nondeductibility for costs associated with entering a new trade or business or beginning work for the first time.


Rev. Rul. 75-120, 1975-1 C.B. 55 (1975)