Magazine article The CPA Journal

Nurse Wins Favorable Ruling on Deducting MBA Educational Expenses

Magazine article The CPA Journal

Nurse Wins Favorable Ruling on Deducting MBA Educational Expenses

Article excerpt

Lori Singleton-Clarke, a nursing coordinator in Maryland, has achieved the status of folk hero among tax practitioners and tax professors by appealing an IRS ruling that denied her a $14,787 education expense deduction for completing an online MBA course in healthcare management to the U.S. Tax Court - and winning (Singleton-Clarke v. Comm'r [T.C. 2009-182 (December 2, 2009)]). It's noteworthy that she appealed pro se (without a lawyer). Because the Tax Court presumes that the commissioner's determination of deficiency set forth in the notice of deficiency is correct, only 14% of those who appeal to the Tax Court prevail. To prevail without the assistance of a lawyer is extremely rare and worthy of study. Her win has generated a great deal of favorable publicity for her at the expense of the IRS. The case is most important, however, because it demonstrates how to navigate the choppy seas of IRS regulations that pertain to the possible deduction of educational expenses.

Background

A review of Singleton-Clarke's professional qualifications is important because they are the key to the Tax Court's decision. She earned a bachelor of science (BS) degree in nursing in 1984. She became a registered nurse and, for the next 24 years, worked in several capacities at a number of hospitals and long-term care facilities. Three of the positions she filled are critical to an understanding of the Tax Court's decision. From 2004 to 2007, she served as quality improvement coordinator for Civista Medical Center, a 108-bed acute-care hospital in Maryland. There she developed and analyzed quality and risk management activities for the hospital. Her duties required her to investigate complaints and to implement improvements for patients, doctors, and nurses. A change in ownership in 2007 caused her to seek other employment.

During 2007 and 2008 she worked for the Children's National Medical Center in Washington, D.C., as the hospital's outcomes coordinator. Her responsibilities were similar to those at Civista. They included developing a systemic approach to measuring and improving healthcare outcomes for doctors, nurses, and patients. Ultimately, the two-hour commute each day motivated her to seek employment closer to home.

Singleton-Clarke commenced working at St. Mary's Hospital in September 2008 as the performance management coordinator. Her responsibilities were similar to those at Civista and Children's National Medical Center. Her focus was on coordinating, planning, and implementing the hospital's performance improvement activities. The position required a registered nurse with a bachelor's degree in healthcare administration; a master's degree was preferred. Experience in clinical healthcare and experience in performance improvement and risk management were also desired. The key issue before the Tax Court was whether the MBA/HCM degree (a master's in business administration/healthcare management) merely improved her present healthcare skills or objectively qualified her for a new position.

Graduate Study

Singleton-Clarke began taking online courses from the University of Phoenix in March 2005. She graduated with an MBA/HCM in April 2008, with a grade point average of 3.57. Singleton-Clarke testified that she enrolled in the program to become more effective in her former and current duties. She believed that nursing had greatly evolved in the 24 years since she earned her degree and she felt disadvantaged working closely with highly educated medical doctors. She said that she thought the MBA/HCM degree would give her greater credibility with her associates, and the courses would make her more effective in her present and future role as a quality control coordinator. She paid the entire cost of her studies because none of her employers had a reimbursement program.

The Trial

In general, the Tax Court presumes that the commissioner's determination of a tax deficiency is correct, and the taxpayer has the burden of showing that the determination was in error. …

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