Ariana K. Uchizono ( 2023 )

United States Tax Court
T.C. Summary Opinion 2023-21ARIANA K. UCHIZONO,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 958-18S. Filed June 21, 2023.
—————
Larry D. Vince, for petitioner.
Samuel M. Warren and Stephanie A. Kingsley, for respondent.
SUMMARY OPINION
CARLUZZO, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 1 of the Internal Revenue Code
in effect when the Petition was filed. Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and this
Opinion shall not be treated as precedent for any other case.
In a notice of deficiency dated October 17, 2017 (notice),
respondent determined a deficiency in petitioner’s 2014 federal income
tax and a section 6662(a) accuracy-related penalty.
Respondent now concedes the accuracy-related penalty; the issue
for decision is whether petitioner is entitled to deductions for education
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure. Monetary
amounts are rounded to the nearest dollar.
Served 06/21/23
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expenses incurred in 2014 while pursuing a master of business
administration (M.B.A.) degree from University of California, Los
Angeles (UCLA).
Background
Some of the facts have been stipulated and are so found. When
the petition was filed, petitioner resided in California.
Petitioner graduated with a liberal arts degree in Spanish and
French from Occidental College in 2012. Soon thereafter she began
working for Inline Translation Services, Inc. (Inline), as a translation
services coordinator.
The description of petitioner’s position with Inline indicates that
her duties were as follows:
The incumbent handles customer inquiries, develops price
quotes for written translations, prepares written
proposals, evaluates and selectively extends credit to new
clients, selects and manages translation project teams
(translators, editors, typesetters), develops and maintains
multilanguage technical glossaries, edits one or more
foreign languages including Spanish, uses translation
memory tools on larger projects and for repeat customers,
and formats final documents, manages desktop publishing
tasks, proofreads final copy and prepares invoices.
At Inline, petitioner was also responsible for managing the budget for
each of her projects.
During 2014, while working at Inline, petitioner enrolled as a
part-time student in an M.B.A. program at UCLA. Inline did not
reimburse petitioner for her M.B.A. expenses, as there was a company
policy that employees could receive reimbursement only for foreign
language classes. Petitioner completed the M.B.A. program and
received her degree in 2017. As relevant, petitioner completed the
following courses in the M.B.A. program: Data and Decisions,
Organizational Behavior, Leadership Foundation, Financial
Accounting, Managerial Economics, Finance Foundations, Marketing
Management, Operations Technology Management, Business Strategy,
Customer Assessment and Analysis, Consumer Behavior, Negotiations
Analyses, and Global Marketing Management.
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Petitioner ended her employment with Inline in May 2016. The
following month petitioner, as part of an M.B.A. course with the
abbreviated name “Intr-Busnss Fld Std,” began an internship at Mattel,
Inc. (Mattel), as a global consumer insights intern. On LinkedIn,
petitioner described her position as an intern with Mattel as:
Designed and coordinated qualitative and quantitative
research projects to answer brand and product questions
posed by cross-functional teams throughout the
organization. Presented research findings to brand and
design teams. Wrote and internally distributed reports
summarizing research findings and recommendations by
telling stories with qualitative and quantitative data.
Managed language quality for translations of international
surveys and worked with vendors to ensure quality of
international data.
Starting in October 2016, after completing the internship,
petitioner was hired by Mattel as a senior consumer insight analyst.
Mattel did not require an M.B.A. degree as a condition of employment.
The job posting under which petitioner applied states that the senior
consumer insight analyst’s duties include:
Executing qualitative and quantitative research projects,
including product development, brand strategy,
communication, tracking, and usability research for Mattel
brands. Working with suppliers and internal research
support services to plan and field primary consumer
research projects for Mattel brands. Analyzing data that
is gathered (qualitative and quantitative) from both
primary research projects and from secondary sources.
Petitioner’s primary duty as a senior consumer insight analyst for
Mattel was to identify vendors with either qualitative or quantitative
expertise to conduct online surveys related to the design and marketing
of Mattel products. Petitioner used the data from the online surveys to
prepare reports for internal clients in Mattel’s design and marketing
departments.
Petitioner’s 2014 federal income tax return includes Schedule A,
Itemized Deductions, on which she claimed an unreimbursed employee
business expense deduction for the tuition, fees, and expenses associated
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with her M.B.A. program. That deduction was disallowed in the notice
and is here in dispute.
Discussion
As a general rule, the Commissioner’s determination of a
taxpayer’s federal income tax liability in a notice of deficiency is
presumed correct, and the taxpayer bears the burden of proving that the
determination is erroneous. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). 2
As we have observed in countless opinions, deductions are a
matter of legislative grace, and the taxpayer bears the burden of proving
entitlement to any claimed deduction. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering,
292 U.S. 435, 440 (1934).
Section 162(a) allows a deduction for ordinary and necessary
business expenses paid or incurred during the taxable year in carrying
on a trade or business. Generally, expenditures made by an individual
for education are deductible under section 162(a) if the education
maintains or improves skills required by the individual in his or her
employment or other trade or business, or meets the express
requirements of the individual’s employer. Treas. Reg. § 1.162-5(a).
Educational expenditures that qualify the taxpayer for a new trade or
business, however, are not deductible. Id. para. (b)(2) and (3).
If the education in question qualifies a taxpayer to perform tasks
and activities significantly different from those he or she performed
before the program, then it qualifies the taxpayer for a new trade or
business. See Robinson v. Commissioner, 78 T.C. 550, 552 (1982). This
is ultimately a question of fact. Glenn v. Commissioner, 62 T.C. 270, 277
(1974).
In considering whether a taxpayer has become qualified through
an academic degree program for a new trade or business, the Court uses
a “commonsense approach” comparing the tasks and activities the
taxpayer was qualified to perform before acquiring the degree at issue
with those the taxpayer was qualified to perform afterwards. See Davis
v. Commissioner, 65 T.C. 1014, 1019 (1976); Glenn, 62 T.C. at 275. The
2 Petitioner does not claim, and the record does not otherwise demonstrate,
that the provisions of section 7491(a) need be applied here, and we proceed as though
they do not.
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relevant inquiry is whether the degree objectively qualified the taxpayer
to engage in a new trade or business. See Robinson, 78 T.C. at 556–57;
Glenn, 62 T.C. at 275.
In this case, the courses petitioner took as part of her M.B.A.
program qualified her to perform tasks that were significantly different
from the tasks she had performed in her employment with Inline. A
number of those courses related to research and data analysis. No doubt
some of the courses might have refined and improved the skills
necessary for petitioner’s employment with Inline, insofar as a
foundation in accounting, finance, and management could be helpful to
anyone involved in the operation of a business. However, petitioner’s
M.B.A. studies were more specifically oriented towards the job for which
she eventually left Inline.
An individual who improves his or her skills in an existing trade
or business may also become qualified for a new trade or business and
cannot deduct the costs of that education. Thompson v. Commissioner,
T.C. Memo. 2007-174, slip op. at 5. Petitioner acknowledges that she
would not have felt comfortable making certain decisions required in her
job with Mattel had it not been for her M.B.A. courses. Specifically,
petitioner’s data and analysis coursework prepared her to perform her
essential role with Mattel, that is, orchestrating qualitative or
quantitative online surveys and analyzing the resultant data. Simply
put, without the M.B.A. degree petitioner would not have been otherwise
qualified for her position with Mattel. For that reason, petitioner’s
education expenses here in dispute are not deductible.
To reflect the foregoing,
Decision will be entered for respondent with respect to the
deficiency and for petitioner with respect to the section 6662(a) accuracy-
related penalty.