Thanks to a trip to Tax Court, Alex Kopaigora will be able to keep his deductions for MBA expenses for the year 2011, mostly. Mr. Kopaigora began working for Marriott International Corporation in 2002 and advanced to a position of significant responsibility.
In June 2006 petitioner accepted a position as senior assistant controller for the Marriott hotel in Los Angeles International] Airport (Marriott LAX). In his role as senior assistant controller, petitioner was responsible for managing a team of employees, reviewing employee performances annually, participating in hiring activities, and training employees. Petitioner’s duties included preparing financial reports, creating budgets, analyzing financial data, producing forecasts to enable reaction to business changes, and monitoring different departments’ performances. Additionally, petitioner conducted audits, prepared an accounting of taxes, prepared financial reports according to generally accepted accounting principles (GAAP), enforced internal controls, reconciled balance sheets, and ensured compliance with reporting requirements.
EMBA
He decided that more education would help. He enrolled in the Executive MBA program at Brigham Young University, which involved traveling to Salt Lake City on alternate weekends. The EMBA program is at the Marriott School of BYU.
According to the Tax Court decision, Mr. Kopaigora’s “employment with Marriott International Corp was terminated for reasons that were later found to be unjustified”. Making an inference about Mr. Kopaigora’s age from his linked-in profile, I have to say that it is probably a good idea to get that experience out of the way when you are fortyish. I didn’t get fired until I was 61 and when they finally repent, I will not get much satisfaction. Oh well. Illegitimi non carborundum.
Mr. Kopaigora stuck with the EMBA program while looking for full-time employment within the corporate finance and accounting field as a controller, assistant controller, senior manager, vice president or director. He graduated with an MBA in August 2012 and in September was hired by Driveit Financial Services as a VP.
No Problem With Substantiation
Tax Court Summary opinions are kind of the reality TV of the tax world, where the stuff of life of ordinary people comes up. What makes this case a little unusual is that there is no dispute about substantiation. That tends to be a staple in summary decisions. Mr. Kopaigora’s personal records are apparently as well organized as you might expect from the type of work he does. Well, it is what you might expect, but it impresses me. The personal records of many accountants are like the shoemakers’ children. The IRS had one gotcha, that they prevailed on. One of the expenses on his spreadsheet was listed as having been paid in 2012, so there is an adjustment. Hopefully, he caught it in time to amend his 2012 return.
A New Trade Or Business?
The IRS wanted to disallow the expenses on the theory that the MBA qualified him for a new “trade or business”. The Tax Court was having none of that.
We believe that the facts support petitioners’ argument. When petitioner enrolled in the EMBA degree program, he was a well-established finance and accounting business manager at Marriott LAX. He managed the hotel’s financial operations and auditing departments, he was responsible for large groups of employees from various backgrounds and specializations, and he made sure the hotel’s business practices were in compliance with GAAP. When his employment was abruptly terminated, he continued to take courses at BYU that improved his managerial and leadership skills–skills that were appropriate and helpful to his position as a business manager. The courses petitioner chose to fulfill his degree requirements did not qualify him for a new trade or business because he was not qualified to perform new tasks or activities with the conferral of his degree. Instead, petitioner chose courses in a line of study that he was familiar with–management and finance. Even though petitioner took a few courses that were outside this scope, we do not believe that these courses by themselves could have prepared him to enter a new trade or business.
Finally, petitioner’s unemployment did not prevent him from continuing his trade or business as a finance and accounting business manager for purposes of section 162. After petitioner’s employment at Marriott LAX was terminated he actively sought employment within the corporate finance and accounting field for the remainder of his time at BYU, and his active job search paid off. Soon after he graduated from the EMBA degree program, petitioner was hired by another company to perform duties that were substantially similar to the duties of his former job. Although petitioner was hired after he graduated, nothing in the record suggests that the degree was a prerequisite for the job.
I’ve got to have a bit of a pedantic quibble with part of this. I don’t think it is accurate to say that he was charged with making sure that the “hotel’s business practices were in compliance with GAAP”. GAAP stands for Generally Accepted Accounting Principles. It is financial statements that are in accordance with GAAP, not business practices. I see that Judge Joseph Nega actually has a degree in accounting, but he went straight from that to a law degree and then to the Joint Committee on Taxation, so I should probably let that pass.
Other Coverage
Lew Taishoff has a piece entitled “Presently Engaged While Unemployed”. It also appears that Mr. Kopaigora was bitten by the blogging bug at some point, but he seems to have gotten over it.