Tuesday, January 12, 2010

Nurse Outduels IRS Over MBA Tuition

Good for Lori Singleton-Clarke:

A Maryland nurse accomplished two rare feats in her battle with the Internal Revenue Service: She defended herself against the agency's lawyers and won, and she got a ruling that could help tens of thousands of students deduct the cost of an M.B.A. degree on their taxes.

The U.S. Tax Court handed Lori Singleton-Clarke her victory last month, saying the 47-year-old Bryantown, Md., woman had properly deducted nearly $15,000 in business school tuition. The Tax Court ruling should make it easier for many other professionals to deduct the expense of a Master in Business Administration degree.

Ms. Singleton-Clarke had a tax-return preparer but it's not clear from the article why that preparer didn't represent her through all of this. Probably a good thing, since she won; a lot of prepareres - not this one! - roll over and play dead once an audit reaches the litigation stage. But her stubborness, and careful record-keeping, saved the day.

The article portrays the IRS as the overbearing enforcement agency it is; Ms. Singleton-Clarke goes mano-a-mano against a tableful of tax attorneys and para-legals but, with my experience at the IRS, this is just business as usual. Tax Court isn't just about one case before it but a whole slew of cases on the docket for that day and likely the week ahead. Tax Court judges are similar to the old West circuit judges in that they ride into a central location and here a calendarful of cases and then move on. That's likely the reason for the nearly one year delay in its ruling. Yes, the IRS usually wins litigation but that's because the IRS picks and chooses its cases wisely. They'll always go up against those kooky tax protesters because there's so much at stake. Also, it's an easy win. But most cases are settled before they reach the Tax Court, thus making the IRS' win rate a lot higher than it seems.

Ms. Singleon-Clarke's efforts notwithstanding, the IRS fumbled the ball badly in this case. They could have easily resolved the matter far earlier in the process, a resolution not necessarily in their favor, but causing far less harm to them than having this Tax Court ruling go against them.

Now, to review this case and then my own client's circumstances to see if I can save them some money on their taxes.

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