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HUENE v. UNITED STATES

October 19, 1965.

Herbert A. Huene, Plaintiff
v.
United States of America, Defendant


Levet, District Judge.


The opinion of the court was delivered by: LEVET

Opinion, Findings of Fact and Conclusions of Law

LEVET, District Judge:

 This is an action for the recovery of federal income taxes in the amount of $694, plus interest, which the plaintiff claims were illegally and erroneously collected from him for the years 1956, 1957 and 1958.

 Issues Presented

 The issues are as follows:

 I. Whether the plaintiff's expenses in attending the New York University Graduate School of Business in 1956 and 1957 and the New York University Law School in 1957 and 1958 were "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business" within the meaning of Section 162 of the Internal Revenue Code of 1954?

 II. Whether the foregoing expenses are deductible under any other provision of the Internal Revenue Code of 1954?

 Statutes

 Section 162 of the Internal Revenue Code of 1954 provides as follows:

 
"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 * * *."

 The Treasury Regulations under the Internal Revenue Code of 1954, Section 1.162-5, outline the circumstances under which education expenses are deductible as ordinary and necessary business expenses under Section 162. The regulations provide:

 
"1.162-5. Expenses for education. - (a) Expenditures made by a taxpayer for his education are deductible if they are for education (including research activities) undertaken primarily for the purpose of:
 
"(1) Maintaining or improving skills required by the taxpayer in his employment or other trade or business, or
 
"(2) Meeting the express requirements of a taxpayer's employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the taxpayer of his salary, status or employment.
 
Whether or not education is of the type referred to in subparagraph (1) of this paragraph shall be determined upon the basis of all the facts of each case. If it is customary for other established members of the taxpayer's trade or business to undertake such education, the taxpayer will ordinarily be considered to have undertaken this education for the purpose described in subparagraph (1) of this paragraph. Expenditures for education of the type described in subparagraph (2) of this paragraph are deductible under subparagraph (2) only to the extent that they are for the minimum education required by the taxpayer's employer, or by applicable law or regulations, as a condition to the retention of the taxpayer's salary, status, or employment. Expenditures for education other than those so required may be deductible under subparagraph (1) of this paragraph if the education meets the qualifications of subparagraph (1). A taxpayer is considered to have made expenditures for education to meet the express requirements of his employer only if the requirement is imposed primarily for a bona fide business purpose of the taxpayer's employer and not primarily for the taxpayer's benefit. Except as provided in the last sentence of paragraph (b) of this section, in the case of teachers, a written statement from an authorized official or school officer to the effect that the education was required as a condition to the retention of the taxpayer's salary, status, or employment will be accepted for the purpose of meeting the requirements of this paragraph.
 
"(b) Expenditures made by a taxpayer for his education are not deductible if they are for education undertaken primarily for the purpose of obtaining a new position or substantial advancement in position, or primarily for the purpose of fulfilling the general educational aspirations or other personal purposes of the taxpayer. The fact that the education undertaken meets express requirements for the new position or substantial advancement in position will be an important factor indicating that the education is undertaken primarily for the purpose of obtaining such position or advancement, unless such education is required as a condition to the retention by the taxpayer of his present employment. In any event, if education is required of the taxpayer in order to meet the minimum requirements for qualification or establishment in his intended trade or business or specialty therein, the expense of such education is personal in nature and therefore is not deductible. " *fn1"
 
"(e) The provisions of this section may be illustrated by the following examples:
 
"Example (1). A is employed by an accounting firm. In order to become a certified public accountant he takes courses in accounting. Since the education was undertaken prior to the time A became qualified in his chosen profession as a certified public accountant, A's expenditures for such courses and expenses for any transportation, meals, and lodging while away from home are not deductible." *fn1"

 The case was tried to the court without a jury. After hearing the testimony of the parties, examining the exhibits, the pleadings, the stipulations of counsel, the briefs and proposed findings of fact and conclusions of law, and after hearing reargument on September 17, 1965, a portion of which was recorded, and examining the memoranda and other papers submitted by the ...


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