Facts
- Paul R. Wassenaar graduated from Wayne State University Law School in June 1972.
- During law school, he performed paid law-related work, including law review duties and summer employment at a law firm.
- After graduation, he studied for and took the Michigan bar exam in July 1972; he passed in October 1972.
- In September 1972, before being admitted to the Michigan bar and before practicing law, he enrolled in New York University’s LL.M. (taxation) program and completed it in May 1973.
- In 1973, he paid expenses associated with the LL.M. program (including items such as tuition, books, and travel and living costs) and claimed deductions for those expenses.
- After completing the LL.M. and after bar admission (May 1973), he began practicing law in the Detroit, Michigan area.
- He incurred costs to move from New York City (where he attended school) to Detroit (where he began employment) and claimed a moving-expense deduction.
- The Commissioner determined a $521 deficiency for 1973, disallowing the education and moving-expense deductions.
Issues
- Whether the LL.M. (taxation) expenses were deductible as ordinary and necessary expenses of carrying on a trade or business under I.R.C. § 162(a).
- Whether the same education expenses were deductible under I.R.C. § 212(3) as expenses incurred in connection with the determination, collection, or refund of any tax.
- Whether the moving expenses were deductible under I.R.C. § 217 when the move was from New York City to Detroit to begin employment.
Decision
- The Tax Court sustained the deficiency and denied all contested deductions.
- The court held the LL.M. expenses were not deductible under § 162(a) because Wassenaar was not carrying on the trade or business of practicing law when he incurred them.
- The court held the LL.M. expenses were not deductible under § 212(3) because general graduate education costs are not expenses incurred “in connection with” the determination of tax liability within the meaning of that provision.
- The court held the moving expenses were not deductible under § 217 because Wassenaar conceded that New York City was not his principal residence, a statutory requirement for the deduction.
Legal Principles
- Education expenses are deductible under § 162(a) only if incurred while carrying on an existing trade or business and if the education maintains or improves skills required in that trade or business; pre-entry professional education incurred before beginning practice is not deductible as a business expense.
- Law-related work performed as a student does not, without more, establish that the taxpayer is already engaged in the trade or business of practicing law for purposes of § 162(a).
- Section 212(3) covers expenses directly connected to determining, contesting, collecting, or obtaining a refund of tax; it does not permit deduction of formal educational costs merely because the subject matter concerns taxation.
- A moving-expense deduction under § 217 requires satisfaction of statutory conditions, including that the move be from the taxpayer’s principal residence; a move from a temporary place of study does not qualify if that location is not the principal residence.
Conclusion
The Tax Court disallowed deductions for an LL.M. (taxation) program because the taxpayer had not yet begun the trade or business of practicing law when the expenses were incurred and rejected § 212(3) as a basis for deducting general education costs; it also denied a moving-expense deduction where the move was not from the taxpayer’s principal residence.