Hill was a teacher in
Virginia. Under Virginia law, in order to keep her teaching certificate,
she had to either pass a test or
take some college classes. So during summer break she took some college
classes at Columbia, costing $239.
Columbia University was much
cheaper in the 1940s.
When she filed her taxes, Hill
deducted the $239 as a business expense. The IRS denied the deduction. Hill appealed.
The IRS claimed that the
cost of the classes was a personal expense, and therefore not deductible.
The Tax Court found for the
IRS. Hill appealed.
The Tax Court noted that
under the applicable section of the tax code (now known as 26 U.S.C.
§162(a)), in order to be deductible,
an expense must be:
Incurred within the taxable
year
Incurred in carrying on a
trade or business
Both ordinary and
necessary.
The Court found that taking
classes at Columbia was not 'ordinary' because the majority of teachers
chose to take the test, not the classes. They also found that it was not
'necessary' because Hill had the option of taking the test, it wasn't
absolutely required for her to take the class.
The Court found that Hill
wasn't technically employed as a teacher over summer break, so the
classes were more to allow her to qualify for reemployment, as opposed to
'carrying on' in her current employment.
The Appellate Court reversed
and allowed the deduction.
The Appellate Court looked
to Virginia law on teacher certifications and found that Hill needed to
take classes to retain her teaching certificate.
The Court found that
although she had the option of taking the test instead of taking
classes, that did not mean that taking classes was not 'ordinary and
necessary'.
The Court found that Hill
went to Columbia to maintain her present position, so the expenses were
within the bounds of 'carrying on' her trade.
One could argue that Hill was
involved in continuing education, and that sounds a lot like
'maintenance'. And maintenance is generally deductible as a business
expense.
As opposed to getting a
college degree in the first place, which is more like an 'improvement'
which is not typically deductible as a business expense.
See Midland Empire
Packing Co. v. Commissioner (14 T.C.
635 (1950)).
