The Tax Court held that a taxpayer could not deduct the $33,000 cost of obtaining a Harvard M.B.A. as an educational expense under Reg. § 1.162-5. Foster v. Commissioner, T.C. Summ. Op. 2008-22 (2/28/08). The court concluded that her Harvard M.B.A. both (1) met the minimum education requirements of her position as Vice- President of Marketing at Reshreshment Brands (at an $117,500 annual salary) within the meaning of Reg. § 1.162-5(b)(2), and (2) qualified her for a new trade or business within the meaning of Reg. § 1.162-5(b)(3).
The court distinguished two cases in which taxpayers had been allowed to deduct M.B.A. expenses (Sherman v. Commissioner, T.C. Memo. 1977-301; Allemeier v. Commissioner, T.C. Memo. 2005-207) because Ms. Foster had an engineering background and the Harvard M.B.A. qualified her for marketing positions. The court also approved a § 6662(a) accuracy-related penalty.
The Tax Court suggested that Ms. Foster's decision to remain in California and not attend the trial in Boston may have contributed to her defeat on both issues:
This case was tried in Boston, Mass., pursuant to petitioner's designation. Petitioner's counsel presented the case at trial without petitioner's testimony and attempted to prove the case through various documents. The Court sustained respondent's authenticity and hearsay objections to most of the documents petitioner's counsel sought to introduce. As a result of her failure to testify, the Court is left with a limited record. It would have been most helpful if petitioner had provided an explanation of her duties before and after receiving the M.B.A.
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