Furner v. Comm'r of Internal Revenue, Docket Nos. 3728-64

• Decision Date: 21 November 1966
• Docket Number: 1950-65.,Docket Nos. 3728-64
• Citation: 47 T.C. 165
• Parties: MARY O. FURNER, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

47 T.C. 165

MARY O. FURNER, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 3728-64

1950-65.

Tax Court of the United States.

Filed November 21, 1966.

Mary O. Furner, pro se.

William J. Gerard, for the respondent.

Held, petitioner is not entitled to a deduction for her expenditures for full-time graduate study which she undertook after she resigned from a position as a social studies teacher in a Minnesota junior high school and prior to commencing teaching social studies in an Illinois junior high school.

SCOTT, Judge:

Respondent determined deficiencies in petitioner's income tax for the calendar years 1960 and 1961 in the amounts of $251.61 and $340.72, respectively.

The issue for decision is whether petitioner, a junior high school teacher, is entitled, under section 162 of the Internal Revenue Code of 1954,¹ to a deduction for her expenditures during the years 1960 and 1961 for full-time graduate study leading to a master's degree.

FINDINGS OF FACT

Some of the facts were stipulated and are found accordingly.

Petitioner filed her individual Federal income tax return for the calendar year 1960 with the district director of internal revenue at Syracuse, N.Y., and filed her individual Federal income tax return for the calendar year 1961 with the district director of internal revenue at Chicago, Ill.

In 1957 petitioner received a bachelor of arts degree from the State University College for Teachers at Albany, N.Y., with a ‘major’ in social studies which included 48 semester hours of history and courses in economics, sociology, and political science.

After graduation, petitioner accepted a position as a teacher in Argyle, Minn., beginning in September of 1957. She remained at Argyle for only 1 school year, terminating her employment in June 1958. At Argyle, petitioner taught subjects in each of grades 7, 8, 10, 11, and 12. For the next 2 school years, until June of 1960, petitioner taught social studies at the eighth-grade level at Crookston, Minn.

Petitioner, while teaching in Minnesota, believed that she was well prepared for her profession in terms of courses in the field of education, but thought she needed ‘more depth’ in the subject matter she was teaching. Primarily, petitioner taught history, and she believed that a further knowledge of history would improve her skill as a teacher of history.

It is normal for teachers to take courses on a graduate level after they have entered the teaching profession. Professional journals in the field of education strongly urge teachers to do further graduate work, and States legislatures revising certification requirements for teachers have increasingly made graduate study a requirement for continued certification.

Petitioner knew that in many school systems she would be required to have a master's degree within a certain period of time. She also knew that other school systems would prefer that their teachers have such degrees. If petitioner had remained at Crookston, she would have been required to present 6 semester hours of graduate work every 5 years and within a certain length of time to obtain a master's degree.

Since petitioner believed that her teaching required greater depth of subject matter than she possessed, and since she believed that she could not gain this depth by obtaining a graduate degree from a believed that it would be difficult to obtain the courses in history she wanted to take by enrolling on a part-time basis. She therefore decided to study as a full-time student at Northwestern University during the school year 1960-61.

It was not customary for Crookston to grant leaves of absence for its teachers. Crookston did not have a sabbatical-leave arrangement. Petitioner resigned from her position in Crookston in June of 1960 and was not on a formal leave of absence at that time. She was not under contract to teach there or at any other place the following year.

During the summer of 1960, petitioner taught social studies to boys of junior high school age in a reading camp at Winter Harbor, Maine. She then enrolled at Northwestern in September of 1960.

While at Northwestern, petitioner took courses in United States History since 1890, Modern France, Cultural and Intellectual History of Russia, Historical Research, Problems on United States History, and Recent United States History. After taking 36 credit hours, petitioner received a master of arts degree from Northwestern in August of 1961.

Petitioner did not teach while at Northwestern; she was not a graduate assistant; and she received no financial assistance.

In April of 1961, petitioner signed a contract to teach in a junior high school in DeKalb, Ill., beginning in September of that year. She began teaching in the junior high school at DeKalb under this contract in September of 1961 and has taught there ever since. Petitioner teaches two classes of American history and two classes of world history. These subjects at the junior high school level are regarded as ‘social studies.‘

The DeKalb school in which petitioner teaches is located on the campus of Northern Illinois University and is financed by that university. Petitioner did not need certification from the State of Illinois to teach in this school. Petitioner is certified in the States of New York and Minnesota but not in Illinois, although from the date of her receipt of her bachelor of arts degree in 1957 she has meet the requirements for certifications in Illinois.

The DeKalb school in which petitioner teaches has, and had in 1961, a stated requirement that its teachers have a master's degree, although it employs some teachers who do not have such a degree. Petitioner received a higher salary during her first year of teaching at DeKalb than she had received at Crookston. This higher salary was due in part to a general increase in the level of teachers' salaries, in part to her additional year of experience, and in part to the fact that she had a master's degree. This school by which petitioner was employed was employed in DeKalb, as is customary in other secondary schools, paid a higher salary to a teacher with a master's degree than to a teacher who is teaching the same subject at the same grade level who has only a bachelor's degree.

Under the rule of the school by which petitioner is employed at DeKalb she would be required to take 30 semester hours of graduate work beyond her master's degree within a period of 7 years, although she is classified as a permanent employee. When petitioner commenced her graduate work at Northwestern she had no knowledge of the existence of the position she later accepted in the DeKalb school.

Petitioner on her Federal income tax returns for 1960 and 1961 claimed deductions of $1,228 and $1703.62, respectively, as educational expenditures incurred while attending Northwestern. Respondent in his notice of deficiency disallowed these claimed deductions with the following explanation for the year 1960:

(a) It has been determined that you have not established that the deduction claimed on your income tax return for the taxable year ended December 31, 1960 for education expenses in the sum of $1,228.00 is allowable. Section 162 and Section 262, Internal Revenue Code of 1954. Accordingly, your taxable income has been increased in the amount of $1,228.00 for the taxable year 1960.

The notice of deficiency for the year 1961 was on a form which did not include a statement of the reason for the disallowance but referred to the explanation being included in a ‘report of examination’ a copy of which had been forwarded to petitioner.

ULTIMATE FACTS

1. Petitioner was not practicing the teaching profession during the time she was enrolled in graduate studies at Northwestern University and was not therefore engaged during that time in carrying on a trade or business of teaching.

2. Petitioner took the full-time graduate course of study at Northwestern University primarily for the purpose of obtaining a new position or substantial advancement in position or for meeting the minimum qualifications of certain schools for a teacher of social studies at the junior high school level.

OPINION

Section 162(a) provides that there shall be allowed as a deduction all the ‘ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.‘ In order to be entitled to the claimed deductions for amounts expended in doing graduate work at Northwestern University, petitioner must show that such amounts constitute ordinary and necessary expenses paid ‘in carrying on a trade or business.’ Otherwise the expenditures are nondeductible under section 262 as personal expenses.

The Code makes no specific mention of educational expenses, but such ordinary and necessary expenses incurred in ‘carrying on’ a trade or business have been held to be deductible, Hill v. Commissioner, 181 F.2d 906 (C.A. 4, 1950), reversing 13 T.C. 291 (1949), and the Commissioner's regulations² have for a number of years specifically provided for the deduction of educational expenses.

In the instant case petitioner does not contend that she undertook her graduate studies at Northwestern in order to meet any express requirement of her employer or of regulations imposed as a condition to the retention of her salary, status, or employment, but contends that her primary purpose in enrolling at Northwestern as a full-time graduate student was the maintaining or improving of skills required in her profession as a teacher. The evidence shows that during the period of petitioner's enrollment at Northwestern she was not actually employed in teaching or on a leave of absence from a teaching position or actively seeking current employment as a teacher prior to completion of her graduation studies. Petitioner contends that even though she was not during the period of her studies at Northwestern either teaching, under contract to teach, on a leave of absence from a teaching position, or seeking to...