Felicia, a recent college graduate, is employed as an accountant by an oil company. She would like to continue her education and obtain a law degree. Discuss Felicia’s tax status if she attends a local law school on a:
a.Part-time basis. b.Full-time basis.
What will be an ideal response?
| a.???? | Regarding the usual education expense justification of maintaining and improving on existing skills, Felicia will not succeed. The IRS has successfully maintained that obtaining a law degree leads to a new trade or business. Reliance on § 222, however, is appropriate since the education need not be job related. Unfortunately, § 222 covers only tuition, is limited to $4,000, and may be reduced (or eliminated) by an AGI limitation. |
| b.??? | If Felicia quits her job and returns to college on a full-time basis, she no longer is in a trade or business. A temporary break in employment status (e.g., leave of absence), however, will cure this problem if properly structured. However, Felicia will still encounter the new trade or business provision. |
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