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NURSE PULLS PLUG ON TAX COLLECTORS OVER MBA TUITION
By Pat Shannan
A
Bryantown, Md., nurse accomplished two rare tax court feats in her
battle with the Internal Revenue Service recently. She not only won
against the agency’s high-priced legal team without using an
attorney herself, but she also got a ruling that could help tens of
thousands of students deduct the cost of a masters degree on their
future taxes.
The
odyssey of Lori Singleton-Clarke, 47, began in 2006, when she filed her
2005 return. It showed just over $50,000 in income, several smaller
deductions, and one large one—for $14,787 of expenses for an
MBA from the University of Phoenix, an online school.
Ms.
Singleton-Clarke deducted the tuition because her tax preparer told her
that met the law’s narrow definitions. When the IRS audited
the return in late 2006, she conceded all the IRS’s
challenges to her deductions but one. She dug in her heels on the
tuition deduction because, after looking at a complex diagram in IRS
Publication 970, she believed she qualified for it.
Ms.
Singleton-Clarke drew on skills she developed as a nurse responsible
for dealing with doctors who may have infringed hospital rules. That
was why she studied for her MBA: she says, “I
didn’t want to feel outmatched by surgeons who
didn’t want to talk to me.”
The
U.S. Tax Court handed Ms. Singleton-Clarke her victory last month,
saying that the business school deduction had been proper. The ruling
is certain to make the expense of a post-college degree more attractive
for many other professionals in the future.
After
getting word of the court decision by mail, “I nearly yelled
the roof off the house,” Ms. Singleton- Clarke says.
“I still can hardly believe it.” She says she
didn’t have a lawyer for the simple reason that she
couldn’t afford one.
Decisions in small cases aren’t allowed to be cited as precedent.
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“But
everyone uses them,” says Melissa Labant, a tax expert with
the American Institute of CPAs. “This case definitely
provides a road map others can use, especially MBA students.”
Few
taxpayers go toe-to-toe with the IRS as Ms. Singleton-Clarke did,
arguing her case without a lawyer. For good reason: In 2009,
individuals won only about 10 percent of about 300 such cases,
according to data from Tax Analysts, a group that fights for tax-system
transparency and since 1972 has won a series of freedom-of-information
cases against the IRS.
Some
of the losers, such as several dozen tax protesters, were tilting at
tax windmills. Others were simply on the wrong side of the law,
including a horse enthusiast who wanted to deduct his hobby losses, an
unsuccessful comedian who tried to classify his expenses as business
losses, and an attorney who claimed over $100,000 in medical deductions
for his visits to prostitutes.
Of
the few who did prevail against the IRS, nearly half came to court on a
single issue: requests for “innocent spouse”
treatment that decouples a spouse from a partner who does not pay his
taxes. This provision has been used mostly to protect wives. One of the
spouses granted relief last year was formerly married to an investment
banker who didn’t pay his taxes after his bonus
didn’t come through.
Pat Shannan is the assistant editor of American Free Press. He is also the author of several videos and books including One in a Million: An IRS Travesty and I Rode With Tupper,
detailing Shannan’s experiences with Tupper Saussy when the
American dissident was on the run in the 1980s. Both are available from
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(Issue # 4, January 25, 2010)
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