The Deductibility of MBA Degree Expenses Under Treasury Regulation 1.162-5: Are You One of the Lucky Few Who Qualify?

Individual taxpayers incurring expenses for education face a significant challenge when determining whether those expenses are deductible as trade or business expenses for income tax purposes. This Note analyzes the deductibility of expenses incurred to obtain an Masters of Business Administration (MBA) degree by investigating the inconsistent outcomes, which result from the courts' varying applications of regulation 1.162-5. Courts have struggled with the deductibility of work-related educational expenses for almost a century. To aid in determining which expenses should be deductible, the Treasury issued the original regulation 1.162-5 in 1958. However, when that regulation proved unsuccessful at solving the problem, the Treasury issued an amended version in 1967, which is still in effect today. Currently, taxpayers who earn an MBA degree have no clear standard for determining whether their expenses are deductible. If a taxpayer wants to get a deduction, he or she will likely have to rely on the judge's determination.