I am a physician in a large group practice of 25 docs. While working full time, I've also been enrolled in a MBA program.

Pub 970 (IRS) outlines the qualifications for taking educational expenses as a business expense deduction. Specifically, the educational expenses qualify if they "maintain or improve skills needed in your present work."

How do I know if the IRS considers MBA coursework as meeting that qualification? Is there a way to confirm that before filing? Certainly there are business responsibilities in a group of 25 physicians. An MBA would improve the skills needed to perform those tasks. However, I don't want to take the deduction "because I think so"... only to get audited then owe back taxes because the IRS doesn't think so.

The second question involves where to deduct this, Sched A, C or F. From Jan 1 to Jun 30 I was an employee of the group, and from Jul 1 to Dec 31 I was a partner of the LLP. Based on the instructions on Pub 970 pg 53, I'm still not clear on where the deduction should be reported. Am I an employee or self-employed? Does it go on Schedule A, C or F?

What are your thoughts? Any advice you could provide would be helpful... or recommend where else to ask. Thank you.

Zip Code: bwoodward@comcast.net

Generally, expenses to "maintain or improve" do not include expense that "Is part of a program of study that will QUALIFY YOU FOR A NEW TRADE OR BUSINESS." Unless you are the practice administrator, an MBA would almost certainly be viewed as qualifying you for a "new trade or business." If your practice were to reimburse you for specific courses that they felt were of value to the practice, you'd get the best result here. Check IRS Pub 508.

Regarding your second question of where to deduct expenses that DO qualify, during the period that you were an employee, you would take the qualifying, unreimbursed expenses on Schedule A as a Miscellaneous Itemized Deduction.

As a partner in an LLP, IF the LLP agreement specifies that partners are "required" to pay their own continuing education, and such expenses are a "partnership" expense, you could deduct it on Schedule E (see the instructions to Form 1065, Schedule K-1, Part II.) Again, it would be better if the practice were to reimburse you for specific courses that they consider as in the nature of CME (a practice administration course would be reasonable, whereas a finance course probably wouldn't be.) Otherwise, I think you're back to Schedule A.

Gary

Zip Code: garyd@davisandbrandel.com