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The taxpayer must be established in the trade or business at the time he incurs an educational expense to be able to deduct such expense under section 162.
Petitioner Paul R. Wassenaar graduated from law school in May 1972. In September 1972, he commenced a graduate law program in taxation at New York University and he graduated with a master’s degree in taxation in May 1973. Petitioner was admitted to the bar in 1973, and subsequently moved to Detroit, where he commenced employment. On his Federal income tax return for 1973, the petitioner deducted the expenses he incurred while attending NYU as an employee business expense. In his notice of deficiency, the Commissioner disallowed the deduction on the ground that such expenses were not ordinary and necessary expenses paid or incurred in connection with any trade or business. In his petition, the petitioner has set forth a claim that he was entitled to deduct the expenses as the cost of his moving from New York to Detroit.
The court noted that deductible educational expenses under section 162(a) may include expenditures for tuition and books as well as amounts for travel and meals and lodging while the taxpayer was away from home. Moreover, the court noted that the taxpayer must be established in the trade or business at the time he incurred an educational expense to be able to deduct such expense under section 162. In this case, the court held that the work the petitioner performed before his graduation from law school and NYU did not constitute practice of law since before petitioner’s admission to the bar in 1973, he was not authorized to practice law as an attorney. Therefore, his expenses at NYU were not incident to the trade or business of practicing law, and thus, he was not maintaining or improving the skills of that profession within the purview of section 1.162-5(a)(1), Income Tax Regs. Anent the second issue, the court held that the petitioner may not deduct his moving expenses from New York to Detroit since he admitted that New York was not his principal residence before the move.