The Non-Deductibility of Juris Doctorate Degree Expenses Under Treasury Regulation 1.162-5


The effects of the recent economic recession and the relatively high unemployment rates that ensued are still felt across the country. According to “The American Workforce,” a survey conducted for The Springboard Project, approximately eight in ten workers, regardless of income or education level, show keen interest in pursuing further training and education.[i][ii] Fortunately, given the relative generosity of the U.S. Tax Code, there are several ways to deduct qualified educational expenses. For example, adults may be able to claim the Lifetime Learning Credit, 20% of the first $10,000 of qualified education expenses, for a maximum amount of $2,000.[iii] However, the income cutoff for Lifetime Learning begins to phase out for singles with modified adjusted gross income above $48,000 and couples above $96,000.[iv] (See IRS Publication 970). Luckily, there’s another option, and the focus of this article, which is deducting educational expenses as a job or career expense. Self-employed individuals (sole proprietors) can write such expenses off as a business expense on Schedule C, and employees can claim a miscellaneous itemized deduction as an “unreimbursed employee business expense.” This option is especially attractive to individuals who are in the higher tax brackets, for whom the government will pick up 39.6%[v] of the cost of courses (i.e. 39.6% is deducted as a business expense).


Consider a typical scenario: an individual works during the day, goes to school at night, and wants to know whether school tuition can be deducted from gross income. Naturally, individuals will want to deduct such expenses since they are taking coursework in order to promote themselves professionally. Due to the attractiveness of deducting educational expenses as a job or career expense, there are many cases on point. Unfortunately, there is no code section addressing work related educational expenses. Section 162(a) of the Internal Revenue Code (26 U.S.C. § 162(a)), which deals with trade or business expenses, refers to ordinary and necessary expenses yet it makes no mention of education. The regulations however, do.[vi]


If an individual is taking courses due to a job requirement, such courses are wholly deductible. The ultimate question comes down to whether a person is already carrying a trade or business. A critical distinction is presented in Treas. Reg. § 1.162-5, that is, in order to be deductible, the course must maintain or improve skills required in an existing profession, not qualify the individual for a new profession. In other words, the course work should expand rather than commence something new. The courts employ a number of different analyses and standards when determining whether educational expenses are deductible, leaving taxpayers hoping to get a deduction for educational expenses largely at the mercy of the judge.[vii]


In Revenue Ruling 74-78, the IRS addressed whether expenditures incurred by a dentist pursuing postgraduate studies in orthodontics could be deducted for Federal income tax purposes. The IRS ruled that, because the expenditures improved his skills as a dentist, they were deductible as ordinary and necessary expenditures under section 162 of the Code. However, in Robinson, 78 T.C. 550, the IRS disallowed, and the Tax Court affirmed and held, that a petitioner, a licensed practical nurse (“LPN”), may not deduct the costs of acquiring a 4-year degree from a school of nursing when such degree leads to her qualification as a registered nurse (“RN”).[viii] To some this would seem counter-intuitive, especially in light of Revenue Ruling 74-78, since the job functions of an RN are similar to that of an LPN. In fact, Sec. 1.162-5(b)(3), Income Tax Regs., provides that “[I]n the case of an employee, a change of duties does not constitute a new trade or business if the new duties involve the same general type of work as is involved in the individual’s present employment.” The Tax Court, however, saw a clear-cut distinction between an LPN and an RN, and stated that “[w]hile it is thus abundantly clear that a ‘teacher is a teacher is a teacher is a teacher’. . . [t]he heightened level of professional judgment, the increase in skills one can perform, and the supervisory powers exercised by an RN serve to distinguish the RN from the LPN in job function and responsibility.”[ix]


Furthermore, the arguably counter-intuitive result reached in Robinson was repeated in Johnson, 77 T.C. 876, where the Tax Court held that real estate agents may not deduct expenses incurred in taking educational courses in real estate that were required under California law to obtain real estate broker licenses. The court reasoned that real estate brokers are in a different trade or business than real estate agents under California law and the real estate courses taken by petitioners led to qualifying them for a new trade or business under Sec. 1.162-5(b)(3), Income Tax Regs.[x] See also, Davis v. Comm’r, 65 T.C. 1014, 1019 (1976) (denying a teacher’s aid with an undergraduate degree in social work to deduct the expense of a doctorate degree in social work, since the Ph.D. degree obtained was the minimum amount of education normally required for the employment secured as a full-time permanent faculty member).


Up to this point several general scenarios related to educational expenses as a job or career expense were presented and analyzed. However, what about a person who attends law school and wishes to deduct the cost of the JD degree. Some courts employ what has been coined the “Commonsense approach,” which requires a comparison between the types of activities “the taxpayer was qualified to perform before acquiring a particular title or degree with those that he or she was qualified to perform afterwards.”[xi] There are dozens of cases involving paralegals, CPAs, law students working part time, and even IRS agents who try to deduct the cost of a law degree. In all such cases, however, taxpayers have lost. Simply put, an educational expense associated with a JD degree, in contrast to an LLM, is non-deductible.


Although there are many cases on point, two stand out because, despite facts favorable to the petitioners, they still lost. In Vetrick v. C.I.R., petitioner was a member of the Montana state bar (passed the bar by self-study without attending law school), who was drafted by army and sent to Cleveland. Following discharge, Vetrick decided to remain in Ohio. Although Vertick was already a licensed attorney, he was not a member of the Ohio state bar. He established a federal law practice in Cleveland, Ohio, as such practice required membership in any State Bar. After deciding to attend law school, he enrolled in courses specifically to sharpen the skills he used in federal court. Nevertheless, the United States Tax Court disallowed the deductions, ruled for the Commissioner, and Vetrick appealed. The Court of Appeals held that cost of law school courses and related travel expenses could not be deducted for income tax purposes as an educational expense by an attorney who was qualified to practice only in federal courts where completion of law school and acquisition of law degree enabled him to perform substantially different legal tasks and therefore qualified him for a new trade or business. Vetrick v. C. I. R., 628 F.2d 885 (5th Cir. 1980). The Vetrick court relied on Sharon v. Comm’r of Internal Revenue, 66 T.C. 515 (1976) aff’d sub nom. Sharon v. C. I. R., 591 F.2d 1273 (9th Cir. 1978), where a New York attorney accepted a job with the IRS in California and was unable to deduct his California bar review costs because they were incurred in pursuit of “a new trade or business,” namely, private practice.


Another case, albeit with less favorable facts, is Wassenaar v. Comm’r of Internal Revenue. Wassenaar graduated from law school with a masters degree in taxation in May 1973. He never practiced law before his enrollment in the program and was not admitted to the bar until May 1973. Wassenaar contended that for more than 10 years prior to 1973, he was in a trade or business of “rendering his services to employers for compensation,” and that he was engaged in the trade or business of “analyzing and solving legal problems for compensation” while he worked on the law review at Wayne State and clerked for two law firms. He also claimed that that the graduate courses in taxation helped maintain and improve his skills in that work. Nevertheless, the United States Tax Court held that such educational expenses are not deductible under Sec. 162(a) because his education must have been more than “tenuously related to the skills required in the taxpayer’s occupation; it must [have been] proximately related to such skills. We cannot accept the petitioner’s argument that courses in the more advanced fields of tax law have any proximate relation to his past employment.” Wassenaar v. Comm’r of Internal Revenue, 72 T.C. 1195, 1201 (1979).


As these and numerous other cases show, any attempt to deduct educational expenses under Sec. 162(a) as far as they relate to a JD degree is futile. See also Weiszmann v. Comm’r, 483 F.2d 817, 819-20 (1973) (denying a patent agent a deduction for law school because his primary purpose in attending law school was to become a patent attorney and whose law degree qualified him for a new trade or business); Gore v. Comm’r, 62 T.C.M. (CCH) 426, 427 (1991) (denying an auditor a deduction for law school since such education qualified him for a new trade or business).


In summary, in cases where concrete educational and examination requirements to become legally eligible to practice in a field must be met, the courts apply an objective approach to determine the deductibility of such expenses. The facts and circumstances of each case are not considered, rather, courts simply disallow a deduction exclusively because the education objectively qualifies the taxpayer in a new trade or business. Thus, the expense of obtaining a JD degree is never deductible under the present-day regulation since an individual may only practice in the legal profession by obtaining the compulsory education and passing the requisite bar examination.

[i]       Springboard Project is an independent commission convened by Business Roundtable that is creating innovative approaches to helping American workers develop the skills they need to remain competitive in the global marketplace.



[iv]     Id.


[vi]     Treas. Reg. § 1.162-5(a)(1) provides that an educational expense will qualify if the education: 1) Maintains or improves skills required by the individual in his employment or other trade or business, or 2) Meets the express requirements of the individual’s employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation.

[vii]    Jill Kutzbach Sanchez, Note, The Deductibility of MBA Degree Expenses Under Treasury Regulation 1.162-5: Are You One of the Lucky Few Who Qualify?, 32 J. CORP. L. 659, 675 (2007).

[viii]   Robinson v. Comm’r of Internal Revenue, 78 T.C. 550, 551 (1982).

[ix]     Id., 78 T.C. 550, 558.

[x]      Johnson v. Comm’r of Internal Revenue, 77 T.C. 876 (1981).

[xi]     Allemeier v. Comm’r, 90 T.C.M. (CCH) 197, 199 (2005).